Viacom Inc. unit Paramount Pictures has reached a $1.6 billion deal to buy live-action film studio DreamWorks SKG, after DreamWorks ended negotiations with General Electric Co.’s NBC Universal, the studio confirmed Sunday.
To offset as much as $1 billion of the financial hit, Paramount plans to sell the valuable DreamWorks live-action film library, which contains 59 films such as “Gladiator” and “American Beauty.” Paramount announced on Sunday that it was in advanced talks to sell the film library to unidentified investors. After the library sale, Paramount would retain worldwide distribution rights to the collection’s titles.
The total sale amount of $1.6 billion includes more than $500 million in outstanding debt, $775 million to the DreamWorks principals and $225 million to repay additional loans that had been made to DreamWorks by Universal, Technicolor and HBO. A private equity group, not yet selected, is expected to acquire the library for $850 million to $1 billion, including the assumption of $550 million in the DreamWorks debt taken on by Paramount.
The transaction is expected to close in the first quarter of 2006.
By acquiring the studio, Paramount gains the right to distribute all current movies in development by DreamWorks and establishes an ongoing production partnership with Steven Spielberg and David Geffen, Paramount and DreamWorks aid in a joint statement Sunday. The deal gives Paramount access to the eight new films on DreamWorks’ slate for 2006 as well as a number of films in its pipeline for 2007, helping Paramount round out its own schedule, which has been said to be weak.
Geffen and Spielberg have signed three-year employment contracts and will continue overseeing DreamWorks but would no longer have a financial interest in the company. Spielberg would not be tied exclusively to Paramount, though it will co-own any movie he directs or produces.
In the deal, Paramount also acquires a worldwide distribution agreement with DreamWorks Animation beginning in 2006 and gains hold of DreamWorks’ television division as well as rights to future DreamWorks Animation characters in TV shows.
The agreement with Paramount does not include DreamWorks Animation SKG Inc., the most profitable part of the company that went public last year.
“We see this at Paramount as a transforming event for the studio,” said Brad Grey, chairman and chief executive officer of Paramount Pictures, in a statement.
Under Paramount’s ownership, DreamWorks will not disappear entirely. It will continue to produce four to six movies a year under its own banner, with a total production budget of $300 million, the Los Angeles Times reported.
The deal was first reported Friday evening by the Wall Street Journal.
On Friday, DreamWorks executives told NBC Universal officials that they would not pursue that studio’s bid, according to the insiders.
Viacom’s board cleared the way for Paramount’s bid on Thursday, on the condition that outside investors put up most of the money for the offer. Paramount has been in talks with investors since November to raise about $800 million to help back a possible bid, the Journal said.
DreamWorks, founded by Steven Spielberg, David Geffen and Jeffrey Katzenberg, was said to be looking for a price of about $1 billion, plus the assumption of debt.
Paramount had explored making a bid for DreamWorks before, but was told by its parent company that it wouldn’t get approval during Viacom’s transition into two companies. Viacom plans to divide by the end of 2005.
Viacom’s board, concerned about a bidding war, expressed a preference for exclusivity in its talks with DreamWorks. DreamWorks had been in talks with Universal for months.
