DreamWorks-Comcast Deal: This Time It's Different

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Jeffrey Katzenberg

Jeffrey Katzenberg has danced with potential suitors before, but the studio's current Comcast talks couldn't come at a better moment as the studio's fortunes are being turned around. Will the mogul stick around after a sale?

In the past few years, deal talks between DreamWorks Animation and Japan’s SoftBank fell through, then the same happened with toymaker Hasbro. This time with Comcast as the potential suitor, analysts believe the results could be different.

Comcast is offering $3 billion for DWA, which is only about a dollar shy of the $35 per share that CEO Jeffrey Katzenberg was looking for during negotiations with SoftBank in September 2014, when DWA’s shares traded in the low $20s. This time around, the stock was at $27.12 before news broke of a possible acquisition, and it closed Wednesday at $32.20.

Plus, while two years ago DreamWorks was in the midst of damage control from a string of duds — Rise of the Guardians, Turbo, Mr. Peabody & Sherman — negotiations this time come after successful releases Home and Kung Fu Panda 3 and just ahead of the highly anticipated Trolls.

The Glendale studio also is more valuable today because it has a more robust TV business that Katzenberg said in March is “the most valuable segment of our company.” In addition to that, its joint venture Oriental DreamWorks is up and running and worth about $184 million by itself, according to an analysis put out by Morgan Stanley.

Meanwhile, digital studio AwesomenessTV, which reaches 150 million online viewers, is worth about $690 million, says a Macquarie Research analyst (DWA paid just $81.3 million for the digital company three years ago).

DWA also is a leaner company after a painful restructuring that included 500 layoffs and the sale of its Glendale campus that the studio now leases back from the buyer. In addition, consumer products can be a booming business, as can licensing its intellectual property to cruise ships and theme parks.

DWA has increased its value so much lately that those with knowledge of the situation say negotiations with Comcast have already gone well beyond the $3 billion mark, and any deal will likely exceed Katzenberg’s previous target of $35 per share.

On Wednesday, Morgan Stanley posited that if Trolls is a $700 million global box-office hit (about the average of the past three Pixar movies) and TV expands in a best-case scenario sort of way, DWA could be worth as much as $43 a share. On the other hand, if one of its next few films causes a write-down and some other initiatives don’t pan out as expected, the stock would be back down to $20 a share.

Insiders say that, unlike past negotiations where would-be acquirers wanted guarantees that Katzenberg would stick around, Comcast isn’t interested in keeping the long-time executive whose name in Hollywood is as well known as his sometimes partners, Steven Spielberg and David Geffen.

In fact, Comcast has long shown a preference for installing their own management at companies being acquired. After it took control of NBCUniversal, for example, Comcast CEO Brian Roberts’ right-hand man Steve Burke became CEO of the asset.

"It's not too surprising given Comcast's track record and the strength of its leadership team," says Macquarie analyst Amy Yong. "But, at the end of the day, DWA was founded and created by Jeffrey Katzenberg. He controls the vote and, I imagine, would have a say in the future of the company even if under a different team."

Whether he stays or goes, a sale of DWA would translate into roughly a $22 million windfall for the chief exec, who controls the company through a majority of voting shares. In 2015, Katzenberg, 65, earned $13.5 million as CEO of DWA, which was twice as much as the year before.

Analysts also seem to think that Comcast is a more serious bidder for DWA because such a marriage, if consummated, makes more sense than one with SoftBank or Hasbro, or even with 21st Century Fox, which also was eyeing an acquisition a while back.

“This deal is consistent with Comcast/NBCU ambitions and major portfolio assets,” says media analyst Hal Vogel. "Comcast is the only company that can take full advantage of DWA's operations. So it's a good deal on both sides.”

Even though Universal has done well in animation with the Despicable Me/Minions franchise via its partnership with Illumination, it needs more, says Yong. “The deal would secure Universal with a well established animation studio, a burgeoning TV business and two gems in the portfolio: AwesomenessTV and Oriental DreamWorks,” he says.