• Hasbro issued a letter to shareholders detailing why its current slate of board nominees should be voted in and admonishing the directors proposed by Alta Fox Capital Management.
• The letter comes three weeks before Hasbro shareholders are set to weigh in on a proxy battle between the toy company and the activist investor.
• The activist investor wants to do away with Hasbro's current "brand blueprint" strategy and has suggested spinning off the company's lucrative Wizards of the Coast and digital gaming business.

Hasbro is going on the offensive against an activist investor wants to add new members to the company's board and spin off the lucrative unit that includes Dungeons & Dragons.

On Wednesday, the toymaker issued a letter to shareholders detailing why its current slate of board nominees should be voted in and admonishing the directors proposed by Alta Fox Capital Management, which owns a 2.5% stake in the company worth around $325 million.

"The Hasbro board nominees have the right balance of skill sets, experiences and fresh perspectives to guide our new CEO – Chris Cocks – and our management team in executing our long-term strategy for the benefit of all shareholders," according to the letter to shareholders, which was obtained by CNBC. "[Alta Fox] is attempting to replace three of our highly skilled and experienced directors with nominees who lack relevant industry expertise and, in our view, possess inferior skillsets."

Representatives for Alta Fox did not immediately respond to CNBC's request for comment.

The letter comes three weeks before Hasbro shareholders are set to weigh in on a proxy battle between the toy company and the activist investor.

Alta Fox initially nominated five directors to the company's board, but narrowed the slate down to three in April. The activist investor wants to do away with Hasbro's current "brand blueprint" strategy and has suggested spinning off the company's Wizards of the Coast and digital gaming business as part of a broader push to grow profitability in the company's consumer products and entertainment divisions.

Alta Fox told shareholders in February that this spin off would increase Hasbro's share value by $100. Hasbro has since refuted that claim and said that separating Wizards of the Coast from its core business would be a detriment to both the division and the company as a whole.

'Nominees who lack relevant industry expertise'

In its Wednesday letter, Hasbro said that it offered Alta Fox the opportunity to have its proposed directors interview with the board's nominating committee. It said Alta Fox initially refused to do these interviews, but ultimately allowed one of the nominees to speak with the committee.

Hasbro added that its board determined that Liz Hamren and Blake Jorgensen, which Hasbro had put forth for director seats, were better additions to the board because "their significant experience and expertise in gaming, technology, operations and capital allocation."

"In our view, Alta Fox's nominees, given their limited relevant qualifications, would not be additive to the board in helping Hasbro achieve its long-term strategy," the letter said.

Hasbro used its letter to point out the shortcomings it sees in each of the three proposed directors from Alta Fox.

The company said Marcelo Fischer, chief financial officer at IDT Telecom, "has a long history of underperforming spin-offs" and noted that his expertise is in telecommunications and personal care, neither of which are "relevant to Hasbro's business model."

Hasbro also noted that Fischer's company, IDT, has a business relationship with Alta Fox that has not been disclosed to shareholders.

Alta Fox's second proposed director is Rani Hublou, who sits on the board of software company Tecsys. The toymaker said it asked to interview Hublou but was not given the opportunity to do so by Alta Fox. Hasbro said Hublou has experience that is "narrowly limited to marketing in the enterprise software space" and "no qualifications in consumer businesses focused on gaming, entertainment or consumer products."

It also noted that Tecsys total shareholder return has fallen 36% in the last 12 months.

The third proposed director is Carolyn Johnson, a board member of Kuvare Holdings, an insurance company. Hasbro said it was also not permitted to interview Johnson.

"[She] has a poor track record regarding business transformation and lacks critical industry experience," Hasbro wrote. "She has a short seven-month tenure and little success as chief transformation officer at AIG, whose net income declined 84% during her tenure."

Hasbro also said that Johnson did not have any experience leading or growing a consumer business and not expertise in gaming, consumer products or entertainment.

Where Hasbro stands

"This is getting more and more personal the longer it persists," said Stephanie Wissink, managing director at Jefferies. "Alta Fox's most recent move and Hasbro's response is consistent with that view."

"It's what we dislike most about activist vs. corporate campaigns; without open communication, mutual respect and agreement, people's reputations are the remaining leverage in the proxy contest heading into the vote," she said.

Hasbro's strategy uses storytelling to drive toys sales. Under the late CEO Brian Goldner, Hasbro successfully grew beyond just toys and games and into the television, movies and digital gaming space.

It uses toy brands like Transformers and My Little Pony to fuel movies and television shows, and then that entertainment content to fuel sales of toys. The company is currently producing a Dungeons & Dragons movie and television show through eOne. It has also used these brands for publishing, apparel and accessories.

While first quarter results, which were reported in April, were weaker-than-expected, Hasbro said that higher toy prices and demand will deliver profits by the end of the year. Shares of Hasbro are down 11% since January.

Net revenue rose 4% to $1.16 billion, boosted by demand for toys based on "Spider-Man: No Way Home" as well as for role-playing games from franchises Magic: The Gathering and Dungeons & Dragons.

The company also lifted its fiscal 2022 operating profit growth forecast to mid-single digits from its earlier estimate of a low-single-digit rise.