Comcast Agrees To Buy DreamWorks Animation For $3.8B

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The news that Comcast dismissed Wednesday as a tawdry “rumor” is now official: The cable giant says it will pay $41 a share in cash for DreamWorks Animation shares.

That gives DWA an equity value of $3.8 billion. With debt, it would come to $4.1 billion — theoretically making this deal slightly bigger than Disney’s acquisitions of Marvel and Lucasfilm.

DWA shares opened up nearly 24% to about $39.92. That represents a 49.2% jump this week, including a pop after news of the companies’ talks leaked. DWA hasn’t traded this high since early 2010.

The companies expect the deal to close by year’s end. If antitrust officials block the acquisition, Comcast might have to pay the studio a $200 million breakup fee.

DWA will join Universal Filmed Entertainment Group, which includes Universal Pictures, Fandango and NBCUniversal Brand Development.

DWA chief Jeffrey Katzenberg will remain as Chairman of DreamWorks New Media, to include interests in Awesomeness TV and Nova. He’ll also consult with NBCUniversal.

NBCUniversal LogoNBCU chief Steve Burke says that DWA “will help us grow our film, television, theme parks and consumer products businesses for years to come. We have enjoyed extraordinary success over the last six years in animation with the emergence of Illumination Entertainment and its brilliant team at Illumination Mac Guff studio. The prospects for our future together are tremendous. We are fortunate to have Illumination founder Chris Meledandri to help guide the growth of the DreamWorks Animation business in the future.”

Katzenberg calls NBCU “the perfect home for our company.” The $41-a-share price represents a 27% premium over Wednesday’s closing price for DWA and “delivers significant value for our shareholders.”

His company’s latest proxy shows that he could collect nearly $21.9 million if he’s terminated or leaves for good reason up to 14 months after DWA changes hands. He would not receive a golden parachute if he isn’t terminated.

Comcast easily can afford DWA: It had more than $5.6 billion in cash at the end of March, the company reported Wednesday. The purchase price is justified, the cable company says, for “an iconic business with great assets, low capital intensity and future growth.” It will not have to change its plan to repurchase $5 billion of its stock this year.

how-to-train-your-dragon-2Analysts 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, Kung Fu Panda and Madagascar

The $3.8 billion price suggests that Comcast expects to benefit from about $300 million in cost savings or synergies, Wells Fargo Securities’ MArci Ryvicker estimates.

DWA’s library has 32 films. It also owns Classic Media, home of properties including Where’s Waldo, Casper , Lassie, Frosty the Snowman and Rudolph the Red-nosed Reindeer.

BTIG analyst Richard Greenfield opposed a Comcast-DWA deal in a note this morning that argues the studio is overvalued.

Although the cable giant can afford it, a deal “would show a lack of financial discipline that should concern investors. While [Comcast CEO] Brian Roberts has long had ‘mouse envy,’ buying DWA will not transform NBC Universal into Disney.”

Related DreamWorks Animation’s ‘Home: Adventures With Tip & Oh’ Bows On Netflix In July

Netflix LogoThe deal puts Comcast into a strange-bedfellows relationship with Netflix. The streaming service has premium channel TV rights to DWA’s films. The studio also is one of the biggest suppliers of Netflix’s original kids programming.

They expanded that agreement in January making Netflix, as they put it, “the global home, outside of China, to a number of new original series.”

DWA also linked with another Comcast rival, Verizon, early this month: The telco bought a 24.5% stake in DWA-controlled AwesomenessTV.

Talking to analysts when the news broke this morning, Viacom CEO Philippe Dauman said that the high price Comcast is paying for DWA should reflect well on valuations for other studios. That includes Paramount, which is offering to sell a minority stake.

“DreamWorks Animation puts out two movies a year,” he says. That makes the terms “a validation of the value of the highest form of content: motion picture content.”

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