DreamWorks and Paramount settle divorce

Ending a short-lived and bitter relationship, DreamWorks SKG, the movie studio founded by Steven Spielberg, and Paramount Pictures said Sunday that a deal had been struck to part ways.

The pact, resembling an amicable divorce settlement with joint custody of about 40 movie projects, came rather smoothly and faster than expected in light of the tense relations between the two studios. Paramount’s parent, Viacom Inc., acquired DreamWorks for $1.6 billion in 2006.

The agreement paves the way for Spielberg and his team of executives to form an independent studio backed by one of India’s biggest conglomerates, Reliance ADA Group, which plans to invest $550 million for a 50% stake. The new studio would keep the DreamWorks name and is seeking to raise more than $700 million in debt financing.

Under the settlement, Spielberg’s new company will take the lead on 15 to 20 film projects owned by Paramount, which would have the option to co-finance and co-distribute the movies. Among them are “Chicago Seven,” “39 Clues” and “Dinner With Schmucks,” according to a person familiar with the situation who did not want to be named because this person was not authorized to speak on the record.

The agreement means that the new DreamWorks will not have to start from scratch and acquire rights to new movies or those owned by Paramount. Additionally, DreamWorks will have the right to co-finance and co-distribute another 15 to 20 projects on which Paramount will be the lead producer. At the same time, Paramount has the option to co-finance and co-distribute any new movie that DreamWorks makes between now and the end of 2009.

Spielberg also will continue to be producer on the “Transformers” series of movies for Paramount and collaborate on three other Paramount films, including “When Worlds Collide.”

All other projects that were in development at DreamWorks will remain at Paramount.

As part of the deal, Spielberg will be taking more than two-thirds of the 150 current DreamWorks employees with him to the new company. The newly independent DreamWorks still needs to find a distributor for its films; the leading candidate continues to be Universal Pictures. David Geffen, one of the original founders of DreamWorks, will not be joining the company.

Spielberg, along with Jeffrey Katzenberg, founded DreamWorks as a private company in 1994. The studio has produced a series of hits for Paramount, including “Blades of Glory,” “Tropic Thunder” and “Transformers.” Those successes have been tempered more recently by a series of misses at the box office, including “The Ruins,” “Things We Lost in the Fire” and “Ghost Town.”

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