Shares in Entertainment One (eOne) fell more than 11 per cent in early trading after revealing a £193.6m rights issue to fund the purchase of a majority stake in Peppa Pig producer Astley Baker Davies (ABD).
eOne will take a 70 per cent stake in the company, which makes popular kids' TV show Peppa Pig. The two firms already hold joint ownership rights to the character.
The move will increase eOne's share of revenues from royalties, licensing and merchandising around the world, from 50 per cent to 85 per cent.
There is still opportunity for "significant growth" of Peppa Pig in new markets, as well as further growth in the US, it said, including associated merchandise such as toys and clothes which will "yield a high cash flow conversion".
"The group believes that the growth potential of retail sales from the exploitation of Peppa Pig is such that the acquisition price for ABD is highly compelling and attractive for eOne, and that the opportunity exists to double retail sales of Peppa Pig in the medium term from their current levels, which the group believes are in excess of $1bn annually," it said in an update.
Chief executive Darren Throop said: "The rights issue offers an opportunity for eOne to create additional financial flexibility to deliver our stated strategy of doubling the size of the business over the next five years. Given the growth profile of Peppa Pig and the opportunities that exist in new and growing markets, we believe the acquisition will create substantial value for shareholders."