Viacom Said to Pull Plug on Pursuit of Dreamworks

Paramount Pictures’ parent company, Viacom Inc., has nixed the idea of making a bid for DreamWorks SKG, according to three sources inside Viacom and Paramount.

The sources said that Viacom Chairman Sumner Redstone, who controls the board, worried that shareholders and potential investors would balk at a major acquisition -- DreamWorks is asking about $1 billion -- at a time when Viacom is poised to split into two publicly traded companies.

Viacom executives declined to comment, but a source close to the company confirmed Wednesday: “DreamWorks is a great asset, but with the split pending, we couldn’t make an acquisition at this time.”

With Paramount out of the picture, NBC Universal is the only remaining suitor for the live-action studio of DreamWorks, which was founded 11 years ago by David Geffen, Jeffrey Katzenberg and Steven Spielberg. General Electric’s NBC Universal on Friday put a revised bid on the table. DreamWorks has not formally responded to that bid.

NBC Universal’s latest offer came after Geffen halted negotiations last month when GE suddenly lowered its original bid.

When those talks collapsed, Paramount Chairman Brad Grey immediately contacted Geffen to express interest in DreamWorks.

Although Grey had Viacom’s blessing to begin talks, he would have needed the approval of the Viacom board to make an actual bid.

But things never got that far.

Even as Paramount was conducting due diligence on DreamWorks, a source close to the matter said that Redstone and Viacom’s board remained “resistant” about the potential acquisition.

Then, last weekend, Redstone, Grey and Viacom co-President Tom Freston came together at a management retreat at the Four Seasons Resort in Scottsdale, Ariz. There, Redstone said it wasn’t prudent to buy another studio, especially right now, according to a source familiar with the conversation.

“It was decided that the timing was off,” this source said.

On Tuesday, Viacom announced it would complete its split by the end of the year rather than in the first quarter of 2006, as previously indicated. The new Viacom, to be headed by Freston, would include Paramount Pictures, MTV Networks and cable channel BET; CBS Corp., run by Viacom co-President Leslie Moonves, would include the CBS television network, UPN, Infinity Broadcasting, Paramount Television and Showtime.

In recent months, Viacom management has repeatedly told Wall Street analysts that after the split, the two companies would be especially selective about any new acquisitions.

Viacom -- which acquired Paramount for $10 billion in 1994 -- has learned firsthand that the movie business is both capital-intensive and extremely volatile.

For decades, Paramount was one of Hollywood’s most vibrant and successful movie factories, with such profitable blockbusters as “Top Gun,” “Forrest Gump” and “Titanic.” But in recent years, the studio has produced more flops than hits.

Since taking the reins in March, Grey has moved aggressively to change the tightfisted culture at the studio, which had become known for its lack of edgy, youth-oriented fare. Grey replaced a number of top executives with his own hires in the hopes of making Paramount more nimble and attractive to talent.

To that end, sources said, Grey fiercely championed the idea of bringing DreamWorks into the studio’s fold.

Buying DreamWorks’ production operation and 60-title library would have given Paramount more live-action movies, which it needs to fill out its future release slate, plus the right to distribute DreamWorks’ animated fare.

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Times staff writer Sallie Hofmeister contributed to this report.