Wall St. Has a Hit on Its Hands As DreamWorks IPO Opens Big

Jeffrey Katzenberg got his dream. Now comes the work.

Thursday morning the Hollywood veteran basked in the success of newly public DreamWorks Animation SKG Inc., ringing the opening bell at the New York Stock Exchange alongside partners David Geffen and Steven Spielberg.

The company’s stock then took its first public bow. By day’s end, the shares had soared 38%, closing at $38.75, up $10.75 from the $28 price set for its initial public offering, which raised $812 million.

The high demand for the stock boosted the company’s market value to $4.1 billion. Separately, DreamWorks said it had arranged for a revolving credit line of $200 million.

With money in hand and Katzenberg at the helm as chief executive, DreamWorks Animation now is under pressure to reward investors with some of the monster-sized success it enjoyed with its two “Shrek” films.

The company has vowed to produce two computer-animated films a year, something not even heavyweight animation rival Pixar has done.

Katzenberg, who with Geffen will retain 93% voting control, said he was confident DreamWorks would succeed, partly because it’s different from Pixar.

“They have a perfect track record and an enviable one,” Katzenberg said of the competition. “We are a different company and we are making films with a slightly different sensibility.”

In contrast to Pixar or Disney, DreamWorks has struggled to distinguish itself as a brand that consistently delivers. Some of the company’s earlier, hand-drawn animated films, such as “Sinbad” were disappointments.

Katzenberg acknowledged that it was not until 2001, when “Shrek” became their first break-out hit, that the studio began to find its voice in animation. Although that process is ongoing, Katzenberg said he was confident that the company would build audience loyalty by telling good stories.

Next year, DreamWorks Animation plans to release “Madagascar”; “Shrek 3” is scheduled for 2006.

DreamWorks is riding a hot IPO market. The offering, which separates the animation operation from DreamWorks live-action studio, also creates a vehicle for the company’s biggest investor, billionaire Paul Allen, to eventually cash out some of his investment.

“We believe he should be rewarded for the gamble,” Katzenberg said. “Our business would not exist today if not for him.”

The offering clearly surpassed Wall Street expectations.

Until Thursday, Pixar had been the only publicly traded computer animation firm. Pixar, whose latest film, “The Incredibles,” is due out Nov. 5, holds a market value of $4.6 billion.

Investors seemed to be reacting to the current success of “Shark Tale,” which has grossed more than $130 million domestically at the box office, and the early summer blockbuster “Shrek 2,” which grossed $840 million worldwide and will be released on DVD next Friday.

Anthony Valencia, an analyst at TCW Group, a leading shareholder in Pixar, said Wall Street saw computer animation as a good bet right now.

“I think people said DreamWorks has a track record and we want in on this one,” he said. “When you do it right, these films have phenomenal returns.”

But some analysts warned that Wall Street had overreacted to the DreamWorks offer.

“This is very akin to what Alan Greenspan called a couple of years ago ‘irrational exuberance,’ ” said Anthony Sabino, an associate law professor at St. Johns University in New York.