EXCLUSIVE: DreamWorks Animation’s sale talks with Comcast slowed today, we’re told, following last night’s disclosure of the cable giant’s interest. After a period of fast-track conversations, negotiators now taking a step back to weigh details including the deal terms and how DWA would fit into Comcast’s NBCUniversal. For example, they still haven’t worked out who would run the animation studio.
One scenario is to combine DWA with Comcast-funded Illumination Entertainment, allowing its chief Chris Melendandri to oversee it while DWA’s Jeffrey Katzenberg exits the company he founded 21 years ago.
Katzenberg has wanted to sell his company for some time, but walked away empty handed from negotiations with Hasbro and Softbank in 2014 and 2015, respectively.
Wall Street considers a deal with Comcast far more plausible: DWA’s share price is up more than 17% today, touching price levels the company hasn’t seen since early 2014. Put another way, DWA’s market value, at nearly $2.8 billion, is up $406 million since yesterday.
For one thing, Comcast can easily afford it. A more than $3 billion deal for DWA would be “little more than a rounding error” for the cable giant, MoffettNathanson Research’s Craig Moffett says. Comcast wouldn’t even have to take out a loan, unless it wanted to: It had more than $5.6 billion in cash at the end of March, the company reported this morning.
Analysts say NBCU’s film distribution, TV networks, theme park and licensed merchandise units could find multiple ways to capitalize on franchises including Shrek, How To Train Your Dragon and Kung Fu Panda.
“When combined with Universal’s execution on titles like Fast And Furious, Jurassic World, Bourne, potentially Warcraft, the combination could provide a breadth second only to Disney,” Barclays analyst Kannan Venkateshwar says.
DWA also owns 51% of AwesomenessTV, and 45% of Oriental DreamWorks.
The studio has a change-of-control provision enabling it to exit the movie and home video distribution arrangement with Fox, which expires at the end of 2017, according to Stifel Research’s Benjamin Mogil. Fox would still have distribution rights to six films it has released — rising to seven with Trolls — and “we could see a buyout of such rights down the road,” he says.
Still, some analysts urge DWA investors to sell today. With today’s stock price reaching a high of $32.20, sellers would be protected if talks with Comcast collapse. They’re now at “a level that is unlikely to be achievable by DWA fundamentals over the next few years,” says JBL Advisors’ Jeffrey Logsdon.
After factoring in $337 million in DWA debt, a $3 billion deal might net its shareholders $2.66 billion, equal to $29.59.
“Maybe a transaction will happen, maybe another false hope,” he says. “We prefer to take the cash value the market is offering today than wait for further developments.”
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