GE Said to Have OKd Pursuit of Studio

General Electric Co. directors Friday gave NBC Universal permission to move forward with negotiating a potential acquisition of the DreamWorks SKG live-action movie studio, according to three sources close to the matter.

Approval from the media company’s corporate parent, which came at a regular GE board meeting in New York, was needed before formal talks could start. The two sides are expected to negotiate exclusively.

Executives from NBC Universal and DreamWorks declined to comment. Sources would not speak on the record because negotiations remain sensitive.

For months, Universal management has mulled over the buyout of the studio founded 11 years ago by director Steven Spielberg, music mogul David Geffen and former Disney Studios chief Jeffrey Katzenberg.

The studios are already longtime business partners. Universal distributes DreamWorks movies on DVD and in theaters globally. Much of DreamWorks is based in Spielberg’s longtime Universal Studios offices.

Universal and Spielberg also enjoy sentimental ties. Although he directs and produces for other studios, Universal was his first home as a fledgling filmmaker. He made such blockbusters as “Jaws,” “Jurassic Park” and “E.T. the Extra-Terrestrial” for Universal. By folding DreamWorks into the studio, Spielberg’s past Universal and DreamWorks films would be housed under one roof, allowing them to be jointly exploited on television and home video.

Even with GE’s approval to move forward, a potential deal would be far from certain because NBC Universal must, through the due diligence process, determine how much DreamWorks was worth and whether it wanted to pay the price.

Although media reports have speculated that a deal could be valued at about $1 billion, industry analysts are reluctant to venture a guess.

Analyst Jeffrey Logsdon says it is too early to value the deal because, as a privately held company, DreamWorks doesn’t have to publicly reveal such key details as its debt level, its spending on upcoming films and, most important, the amount of cash generated by its film library.

“You have no way of quantifying what DreamWorks is worth,” Logsdon said.

He said Universal also would factor in how much money it could receive for distributing DreamWorks’ animated features, such as the next installment in the blockbuster “Shrek” franchise. Although Glendale-based DreamWorks Animation SKG was spun off publicly last year, the live-action business continues to distribute its movies for an 8% fee.

“You’d have to make an educated guess as to what DreamWorks’ next nine animated films will generate,” Logsdon said.

In acquiring DreamWorks, Universal would be buying a relatively small library of some 60 live-action movies, including the Oscar-winning titles “Gladiator” and “American Beauty.”

But many of its successful releases, including “Gladiator” and Spielberg’s “Saving Private Ryan,” are co-owned by other studios. DreamWorks also has had its share of flops, including last weekend’s premiere of the $126-million Michael Bay film “The Island,” co-financed by Warner Bros.

A potential acquisition would also include any movies DreamWorks currently has in production, including Spielberg’s “Munich,” finished films poised for release and projects in development.

Christopher Dixon, a managing director at Gabelli Group Capital Partners Inc., said folding DreamWorks into Universal would be beneficial for both sides.

“It’s a natural deal for DreamWorks because at the very least it lowers their film financing costs, and for Universal it extends the existing relationship with DreamWorks and with Spielberg,” he said.

It’s unclear how DreamWorks would be structured under Universal, but sources speculated it would operate as a production label similar to Spielberg’s predecessor production company, Amblin Entertainment.

A sale to Universal would further unravel the elaborate entertainment studio that Spielberg and his partners founded in 1994. But the trio drastically curtailed their ambitions after endeavors in television, music and video games faltered.