DreamWorks Animation sale could help it at box office, analysts say


DreamWorks Animation has evolved from a fledgling studio into a $700-million-a-year multimedia powerhouse, but Wall Street analysts said Sunday that the proposed acquisition by Japanese telecommunications giant SoftBank Corp. could help the studio weather an increasingly volatile run at the box office.

SoftBank offered to buy the Glendale-based studio for $32 a share, according to a person familiar with the talks — well above the company’s current share price, which closed at $22.36 on Friday. The deal values DreamWorks at $3.4 billion.

Analysts noted that SoftBank’s capital could give DreamWorks the financial stability it has been lacking as a stand-alone studio dependent on the fortunes of two or three new releases each year.


Although the Jeffrey Katzenberg-led studio is behind box office favorites such as “Shrek” and “Madagascar,” it has also experienced recent misses such as “Turbo” and “Rise of the Guardians.”

With this kind of business model, “every film has to be a huge hit or you’re in trouble,” said Steve Hulett, a business agent for the Animation Guild, which represents many DreamWorks employees.

Unlike rival studios owned by media conglomerates, DreamWorks has little cushion when one movie flops. The company posted a $15.4 million loss in the second quarter and has reported three write-downs in the last two years.

“SoftBank’s deep pockets provide access to capital for DreamWorks’ hit-driven business,” said Laura Martin, a senior media analyst with Needham & Co. in Los Angeles.

Tokyo-based SoftBank controls Sprint Corp. and recently dropped a bid to acquire T-Mobile. DreamWorks Animation, meanwhile, has been attempting to diversify its operations with interests in television, theme parks, live entertainment and digital media.

“I think they are sort of doing a 21st century version of what Disney did in the 1950s, when they went from being just an animation studio to doing live action,” Hulett said. “They diversified, and that’s the only thing you can do if you want to be a long-term player. Now it probably makes sense to sell.”

Added Martin: “This is a great deal for DreamWorks shareholders because it’s a generous premium to their public share price, and we expect DreamWorks shareholders to approve the deal.”

Other analysts, however, were more skeptical.

“DreamWorks has been a steady content creator for a pretty sustained period of time, and the ramp-up in production hasn’t yielded the success that they hoped for,” said Rich Greenfield, a senior media analyst with BTIG, which has a sell rating on DreamWorks. “I think Disney and Pixar, with lesser output, have been far more successful and far more profitable. The question from us is, why now? What are you buying?”

To be sure, the deal poses some risks for SoftBank, given DreamWorks’ track record at the box office and the history of foreign investors in Hollywood.

Another big Japanese company, Matsushita Electric Industrial, made a splash in Hollywood when it acquired MCA Inc., former owner of Universal Pictures, in 1990 for about $6.6 billion. But Matsushita sold its investment five years later.

Investors cooled on DreamWorks Animation after the studio struggled at the box office, but lately analysts have been encouraged by the performance of “How to Train Your Dragon 2,” which had a slow domestic debut but did well internationally, especially in China.

The film has grossed $175.9 million in the U.S. and Canada and $435.2 million overseas. In China, the film grossed $26 million in its opening weekend, surpassing the popular “Kung Fu Panda” films and setting a record for the highest animated opening of all time in that country.

DreamWorks’ expanding operation in China may also have been appealing to the Japanese telecom company, which is said to be eager to bolster business in the world’s most populous country. SoftBank is the largest shareholder in the Chinese e-commerce giant Alibaba.

DreamWorks has teamed with Chinese partners to build an animation studio and design an entertainment district in Shanghai, where it is co-producing the third installment of the “Kung Fu Panda” franchise.

“Acquiring DreamWorks makes a lot of sense for SoftBank because its hit content has revenue streams for decades and high barriers to entry,” Martin said.