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Paramount's DreamWorks come true
Viacom unit agrees to buy Spielberg-founded studio for $1.6 billion, including debt.
December 12, 2005: 8:26 AM EST
Director Steven Spielberg is one of three co-founders of DreamWorks SKG.
Director Steven Spielberg is one of three co-founders of DreamWorks SKG.

LOS ANGELES (Reuters) - Paramount Pictures agreed Sunday to buy DreamWorks SKG in a $1.6 billion cash-and-debt deal that gives the Viacom Inc.-owned studio a much needed boost and ends the efforts of Steven Spielberg and two other moguls to build an independent movie and television empire.

Viacom (Research) will pay about $774 million in cash. The rest of the $1.6 billion purchase price is assumption of debt.

Paramount and its media conglomerate parent sealed the deal in about a week, snatching privately held DreamWorks from General Electric Co. (Research)'s NBC Universal, which had been in on-again, off-again talks for most of a year, executives said.

Viacom plans to sell DreamWorks' 59-title library, which includes Oscar winner "American Beauty" and hit "Gladiator," for $850 million to $1 billion in the next couple of weeks, leaving it with a net purchase price of $500 million to $650 million, Viacom executives said in a conference call.

Steven Spielberg, director of movies like "Schindler's List" and "Saving Private Ryan," will stay on at DreamWorks as producer-director and studio co-founder David Geffen will remain as chairman.

The two are responsible for producing four to six live action films a year for Paramount, boosting that studio's total output to 14 to 16 pictures in 2006.

The deal "will dramatically accelerate the turnaround of Paramount," said Viacom Co-Chief Operating Officer and Co-President Tom Freston.

The transaction also sharply raises the profile of Brad Grey, the Paramount chairman and chief executive who was brought in earlier this year to shore up operations after the studio stumbled in recent years. Freston had said Paramount had failed to pursue big budget but risky films that could bring big paydays.

The deal is expected to close in the first quarter of 2006, and will not affect the planned split of Viacom into two public companies before the end of 2005.

Freston said Viacom would still look to make smaller acquisitions in areas including interactive digital, cable systems and foreign film companies.

In addition to film production, Paramount gains the right to globally distribute movies from DreamWorks Animation SKG Inc. (Research), maker of computer animated hits like "Shrek."

The end of the Dream

The sale to Viacom marks the end of an independent DreamWorks, founded 11 years ago by Jeffrey Katzenberg, Spielberg and Geffen.

But the trio, who aspired to make movies, TV shows, video games and new digital products that would rival Hollywood's grand old studios, had hoped to sell out even sooner and had been in talks with NBC Universal for most of the year.

"Due to my very long history and my loyalty to Universal, I was saddened that after long negotiations and many compromises, we were unable to come to terms with Universal's parent company, GE," Spielberg said in a statement. With Universal, Spielberg produced such classics as "Jaws," "E.T., the Extra Terrestrial," "Jurassic Park" and "Schindler's List."

Geffen said that after an exclusive negotiating period with NBC ended, the group aimed to negotiate "with somebody who was ready to conclude a deal rather than talk about it." The Viacom deal was sealed in about a week, he said.

Geffen said GE's NBC Universal had accepted terms similar to the Viacom deal, then reneged. DreamWorks had a mixed summer, including U.S. box office flops like "The Island" and mid-level hits like thriller "Red Eye."

The acquisition overall will add to net income and free cash flow in 2006, Viacom Chief Financial Officer Mike Dolan said.

But at least one financial analyst questioned the impact of the deal on Paramount and the sale of the library.

"I guess I'm just failing to see this as a watershed event for Paramount, particularly if the library is going to be sold off," independent analyst Rich Greenfield said.

"It's a relatively small, strategically logical transaction," he added.

Investment bank Bear Stearns advised the Viacom side and Goldman Sachs assisted DreamWorks.

Paramount further won exclusive rights to populate its own TV shows with future DreamWorks Animation characters, and it will pay $75 million in cash to DreamWorks Animation, which DreamWorks Animation said it plans to use to repay debt.

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Preliminary trading of split-up Viacom is underway. Click here for more.  Top of page

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