DreamWorks Animation Studio weighing sale to SoftBank

Jeffrey Katzenberg is again weighing a sale of DreamWorks Animation SKG Inc., after an attempt to build the film studio into a mini-Walt Disney Co. was rocked by uneven box-office results.

SoftBank Corp., the Japanese telecommunications company headed by Masayoshi Son, is in talks to buy Glendale, California-based DreamWorks Animation, people with knowledge of the discussions said on Sept. 27. An acquisition hasn’t been formally discussed by senior executives at SoftBank, and the odds of a deal proceeding are narrow, said another person familiar with matters at Tokyo-based SoftBank.

The decision to weigh a sale highlights the challenges faced by Katzenberg as he seeks to diversify beyond film. DreamWorks Animation, which previously looked for a buyer, has expanded its TV business and acquired Awesomeness TV, an online video network, while forming a partnership in China that includes live entertainment. Those efforts haven’t grown large enough to offset film write-offs that hurt the stock.

“Most investors believe Katzenberg wants a deal with a bigger media company where he has a path to the CEO seat,” said Paul Sweeney, director of North American research at Bloomberg Intelligence. “This does not appear to be such a deal.”

SoftBank has offered $32 per DreamWorks Animation share, according to the Hollywood Reporter, 43 percent more than the stock’s closing price on Sept. 26. The DreamWorks Animation board held an emergency meeting last week to weigh the $3.4 billion bid, the publication said.

Content consolidation

SoftBank fell 0.8 percent to 7,836 yen at the trading break in Tokyo, compared with a 0.4 percent increase in Japan’s benchmark Topix index. The shares have dropped 15 percent this year.

Dreamworks Animation, taken public by Chief Executive Officer Katzenberg in 2004, is open to other offers, one of the people said.

21st Century Fox Inc.’s attempt to buy Time Warner Inc. for $85 billion in August set off a wave of speculation about media- industry consolidation. Independent content companies are at a disadvantage negotiating distribution terms with larger pay-TV operators such as Comcast Corp., which is buying Time Warner Cable Inc. for $44 billion. AT&T Inc. is buying satellite service DirecTV for $48 billion. Starz, the movie channel controlled by John Malone, is seeking a buyer, people familiar with the matter said last week.

Son’s SoftBank controls the third-largest U.S. mobile operator, Sprint Corp., and has been looking for more U.S. media and technology investments. The company ended talks to buy the fourth-largest mobile carrier, T-Mobile US Inc., in August because of regulatory opposition.

Alibaba IPO

SoftBank can afford DreamWorks Animation and a successful deal would make it the second Japanese company to currently own a Hollywood film studio. The company’s stake of more than 30 percent of Alibaba Group Holding Ltd., the Chinese e-commerce company that went public this month, has a market value of more than $70 billion. Sony Corp. owns a film and TV studio in Culver City, California.

Just weeks after abandoning the T-Mobile takeover, SoftBank sold almost $4 billion in bonds. Alibaba’s initial public offering on Sept. 19, which led SoftBank to forecast a gain of about 500 billion yen ($4.6 billion), is a step toward global expansion, Son said at the time on Bloomberg Television’s “Market Makers.”

“The acquisition would benefit SoftBank in revenue, and also by offering content to its mobile carrier, it would benefit Sprint,” said Tomoaki Kawasaki, a Tokyo-based analyst with Iwai Cosmo Securities Co Ltd.

Most acquisitive

Son, 57, laid out a 300-year plan in 2010 that included investing in 5,000 companies by 2040. Even as he forecast that 99.98 percent of companies would cease to exist in their current form over the next 30 years, he vowed that SoftBank would survive. Last year, he attempted to buy Universal Music Group from France’s Vivendi.

Son is Japan’s most acquisitive executive, with SoftBank making $51 billion of deals in the past five years, according to data compiled by Bloomberg. That was almost double the amount spent by Japan’s next-biggest buyer, Nippon Steel & Sumitomo Metal Corp.

SoftBank is considering an investment in Mexican wireless carrier Grupo Iusacell SA, people with knowledge of the matter said last week, in what may be its first foray into the fast- growing Latin American market.

DreamWorks Animation has been expanding in Asia, where SoftBank is allied with Alibaba.

Chinese expansion

Eric Wold, an analyst at B Riley & Co. in San Francisco, sees opportunities for well-financed Chinese companies to invest in Hollywood. Besides DreamWorks Animation, he said Lions Gate Entertainment Corp., maker of the “Hunger Games” films, is an attractive target, along with theatrical technology companies such as Imax Corp. and RealD Inc.

“Given the surge in the box office industry within China in recent years, I believe that it only makes sense for well- capitalized companies to look to expand and gain access to content in the world’s largest box office market,” Wold said. “DreamWorks has an impressive library of content and strong franchises that, I believe, would resonate well within China.”

In 2012, Oriental DreamWorks was formed by DreamWorks Animation and three Chinese media companies, China Media Capital, Shanghai Media Group and Shanghai Alliance Investment. They took a 55 percent stake in the venture, giving DreamWorks Animation 45 percent. The business was set up to produce local- language animation with a team of 150 animators.

Alibaba, Youku

The U.S. company will co-produce “Kung Fu Panda 3,” scheduled for release in 2016, with Oriental DreamWorks.

Oriental DreamWorks also announced a plan to invest more than 20 billion yuan ($3.3 billion) building an entertainment center, called The Dream Center, in Shanghai, to rival New York’s Broadway and London’s West End.

Katzenberg, 63, founded DreamWorks SKG with David Geffen and Steven Spielberg two decades ago, and split the animation unit into a separate, public company in 2004. Geffen and Spielberg, who runs the separate live-action DreamWorks Studios, are investors in DreamWorks Animation.

DreamWorks rose 0.6 percent to $22.36 on Sept. 26, giving the company a market value of $1.89 billion. The shares have declined 37 percent this year amid the lackluster performance of recent films that required writedowns, including “Turbo” and “Mr. Peabody & Sherman.”

Katzenberg has discussed the offer with SoftBank and would stay for five years, the Hollywood Reporter said.

Alibaba has invested in Youku Tudou Inc., operator of China’s biggest online video sites, and in July announced plans for a streaming service with Santa Monica, California-based Lions Gate. Other Chinese companies, including Fosun Group and DMG Entertainment, have invested in Hollywood films or movie companies.

This story was originally published September 28, 2014 at 10:11 PM with the headline "DreamWorks Animation Studio weighing sale to SoftBank."