NBCUniversal to Acquire DreamWorks Animation in $3.8B Deal

Paul Jeffers
DreamWorks Animation CEO Jeffrey Katzenberg

Founder Jeffrey Katzenberg will not be running the studio he founded, but will serve as chairman of DreamWorks New Media and consultant to NBCUniversal.

Comcast's NBCUniversal made things official on Thursday, announcing a $3.87 billion deal to acquire entertainment mogul Jeffrey Katzenberg's DreamWorks Animation.

The combination would put classic franchises such as DreamWorks' Shrek and Kung Fu Panda under one roof with Universal's Minions and Despicable Me. Universal's beefed-up animation prowess also marks a massive competitive shot against rival Walt Disney Co., not just in films but in merchandising and theme-park tie-ins.

But beyond the deal getting done and a boost for Comcast's content business, the deal marks a major personal move for Katzenberg. He will no longer be running the studio he founded in 2004, causing some in the entertainment industry to wonder what his next move might be. 

"Having spent the past two decades working together with our team to build DreamWorks Animation into one of the world’s most beloved brands, I am proud to say that NBCUniversal is the perfect home for our company," said Katzenberg, "a home that will embrace the legacy of our storytelling and grow our businesses to their fullest potential."

The agreement also marks an end of DWA's long search for a buyer. In recent years, it had held talks with the likes of Japan’s SoftBank and toy giant Hasbro, among others, but a deal never materialized.

Katzenberg, who as the controlling shareholder of DWA stood to get a payout of about $21.9 million from the sale, will get a new role. He will become chairman of DreamWorks New Media, comprising the company's ownership interests in Awesomeness TV and NOVA. He also will serve as a consultant to NBCUniversal.

There is some speculation that NBCUniversal will look to sell DreamWorks New Media once the deal closes, according to a person familiar with the deal who was not authorized to speak publicly. Verizon, whose DirecTV satellite television provider is a direct competitor to Comcast, has a 24.5 percent ownership stake in Awesomeness TV.

The question remains if Katzenberg, as a second act, might try to buy back those properties should Comcast move to sell them.

NBCUniversal and Disney already compete in the areas of family movies, animated films and theme parks. One Wall Street observer said that DWA franchises and characters could benefit from NBCUniversal's promotional strength, reach and careful development of brands.

DWA will become part of the Universal Filmed Entertainment Group, which includes Universal Pictures, Fandango and NBCUniversal Brand Development and which is led by chairman Jeff Shell. Illumination Entertainment founder Chris Meledandri, whose company has been behind the hit franchise Despicable Me/Minions, will run the combined animation business and "help guide the growth of the DreamWorks Animation business in the future," the company said.

“DreamWorks Animation is a great addition to NBCUniversal,” said Steve Burke, CEO of NBCUniversal. “Jeffrey Katzenberg and the DreamWorks organization have created a dynamic film brand and a deep library of intellectual property. DreamWorks will help us grow our film, television, theme parks and consumer products businesses for years to come."

Meledandri added, "There are few people in the history of our industry who have made a bigger impact than Jeffrey Katzenberg."

Comcast’s Universal Pictures studio has had much success in recent years with such animated franchises as Despicable Me and Minions, but the DWA deal is set to boost its animation and family entertainment credentials. Observers have said that the combination of NBCU and DWA will create a stronger player in the family content space.

Further, NBCUniversal gets its hands on what is widely considered to be DreamWorks' superior technology (the company is famous for hiring rocket scientists to develop sharper-looking animation).

And NBCUniversal also gains film franchises such as Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon. These kinds of tentpoles have been a big focus for Burke and his team.

Asked on Comcast's earnings conference call on Wednesday if franchises were an important part of the studio's strategy, the CEO said "absolutely." Burke said that "five years ago, we had one franchise," namely Fast and Furious, but "today, we have eight franchises, and we are hard at work trying to build more."

NBCUniversal also touted DWA's "successful" consumer products business, its "thriving TV operation that is a significant supplier of family programming" and DreamWorks Classics, which includes such characters as Where’s Waldo, Casper, Lassie, Frosty and Rudolph the Red-Nosed Reindeer, which it said "will become part of the NBCUniversal portfolio."

Under the terms of the acquisition, DreamWorks Animation shareholders will receive $41 per share in cash. That is a 27.3 percent premium to Wednesday's close and a 51.2 percent premium to DWA's Tuesday close, before first news of the deal talks. The companies said that this "implies a $3.8 billion equity value based on a fully diluted share count." In a regulatory filing, Comcast said the price also implies "a $4.1 billion enterprise value, inclusive of the assumption of debt."

The price tag compares to the $4.05 billion that Walt Disney paid for Lucasfilm in 2012, the $4 billion it paid in 2009 for Marvel and the $3.5 billion China's Dalian Wanda Group paid for Legendary Entertainment early this year.

"Including reasonable expectations for additional revenue opportunities and operating efficiencies, which will be realized over time, Comcast believes that the acquisition price represents a high single-digit operating cash flow multiple — a fair price for an iconic business, with great assets, low capital intensity and future growth," read Comcast's regulatory filing.

The deal is expected to close by the end of the year. If it fails to get regulatory approval, DWA is entitled to a $200 million breakup fee, according to a regulatory filing.

What approvals are required to close the transaction? "The Department of Justice and Federal Trade Commission will need to determine between themselves as to which agency reviews the transaction from an antitrust perspective," said Comcast. "This transaction does not require FCC approval. In addition to the U.S., merger control filings will also be required in certain foreign jurisdictions. The agreement has been approved by the boards of directors of DreamWorks Animation and Comcast, and the controlling shareholder of DreamWorks Animation has approved the agreement by written consent." 

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