Paramount Reaches $1.6 Billion Agreement to Buy DreamWorks

Dec 12, 2005  •  Post A Comment

Viacom’s Paramount Pictures reached an agreement Sunday under which it will pay $1.6 billion to acquire the DreamWorks SKG film and television operations in a deal that analysts think will help turn around lagging Paramount.

As part of the deal, Paramount will pay $774 million and assume around $840 million in debt. Immediately upon the closing of the transaction, Paramount said, it will sell the DreamWorks 59-title film library for between $850 million and $1 billion, which could reduce the final purchase price to between $500 million and $650 million.

Viacom officials said they will sell the film library because though the assets are attractive, they have a declining cash flow that isn’t in keeping with Viacom’s asset mix. The company said it has already received strong interest in the library from a number of financial buyers.

In addition to DreamWorks’ current and future film slates, Paramount also gets DreamWorks’ television production operation and its properties, including the syndicated “Spin City” and the current series “Las Vegas,” which airs on NBC.

Also included are exclusive rights to future DreamWorks Animation characters in television shows. Viacom officials said they are particularly interested in identifying opportunities to produce shows for Nickelodeon. The publicly traded DreamWorks Animation is not included in the sale.

What remains a question, however, is the status of DreamWorks’ pod deal with NBC Universal. Struck in 2004, the deal is set to expire in 2007.

Upon completion of the sale, DreamWorks principals Steven Spielberg and David Geffen will enter into new employment contracts with Paramount, assuming the titles of producer/director and chairman, respectively. DreamWorks Animation CEO Jeffrey Katzenberg’s title will not change.

Viacom co-Chief Operating Officer Tom Freston said the DreamWorks purchase speeds up a turnaround at Paramount that was expected to take two to three years to complete, and adds four to six more films to Paramount’s planned slate of 14 to 16 films.

The sale comes on the eve of the planned split of Viacom into two publicly traded companies. One company, to retain the Viacom name, will include MTV Networks and Paramount, while the other company, to be named CBS Corp., will include the broadcast television and radio assets, along with cable network Showtime.