DreamWorks plans $650 million animation spin-off
Wednesday July 21, 7:30 pm ET
By Bob Tourtellotte
LOS ANGELES, July 21 (Reuters) - Riding high on hit movie "Shrek 2," DreamWorks on Wednesday filed plans to spin off its animation unit, raising $650 million to pay down debt and fund new films in a move that further distanced the studio from the original vision of its founders.
The deal would separate DreamWorks Animation Inc. from the parent company formed nearly a decade ago by Hollywood moguls Steven Spielberg, David Geffen and Jeffrey Katzenberg with the goal of creating a digital-based studio of the future.
DreamWorks Animation, based in the Los Angeles suburb of Glendale, California, would be controlled by Katzenberg and Geffen. Katzenberg would be chief executive and Geffen would sit on the board, according to a filing with the U.S. Securities and Exchange Commission.
The filing did not disclose share price or timing details of the initial public offering, nor did it set a value for the company or say how big a stake the owners would hold after the IPO. A DreamWorks spokesman declined to provide details.
Roger Enrico, former chairman and CEO of PepsiCo Inc. (NYSE
EP - News), would be chairman. Spielberg would not hold a seat.
Microsoft co-founder Paul Allen, an initial DreamWorks investor, would sit on the board and could cash out some of his original investment, although the filing did not provide any details on his plans.
A spokesman for Allen's investment firm, Vulcan Inc., declined to say whether he had any plans for his DreamWorks stake.
Hal Vogel of New York-based Vogel Capital Management, said deals like this often see management selling 20 percent to 25 percent of the company's shares, implying a value of $2.6 billion to $3.25 billion for DreamWorks Animation.
Of the money raised, $175 million would be used for capital and the balance will pay off debt, according to the filing.
DIGITAL RISK, FINANCIAL REWARD
"There's an excellent management team, a large production pipeline, and animated movies have proven to be very strong in terms of success," Vogel said.
But those positives for potential investors come with risk. DreamWorks Animation faces competition from Pixar Animation Studios Inc. (NasdaqNMIXR - News) and The Walt Disney Co. (NYSE
IS - News)
The new company will focus mainly on computer-generated, or "CG," movies like "Shrek 2," which has been the most successful animated movie ever, raking in $425 million at North American box offices and more than $300 million internationally. The original "Shrek" garnered more than $450 million worldwide in 2001.
DreamWorks has fared less well with its hand-drawn animated movies. Last summer's "Sinbad: Legend of the Seven Seas" generated only $26 million at domestic box offices.
DreamWorks Animation lost $189 million last year on $296 million in revenue. Yet, behind "Shrek" in 2001, it posted a profit of $3.7 million.
Pixar has seen five straight hits, and investors who bought its shares in 1995 when its first film "Toy Story" hit theaters could have bought in the low $20s. They would be holding shares valued at $68.71 on Wednesday.
DreamWorks Animation, with some 1,200 employees plans five computer-generated movies through 2006, including "Shrek 3," "Madagascar" with the voices of Ben Stiller and Chris Rock and "Over the Hedge" with the voice of Jim Carrey.
It will premiere CG movie, "Shark Tale," in Venice this September, and a U.S. release is planned for October. An IPO would likely take place this fall between "Shrek 2" success and "Shark Tale" hype.
WAKE UP TO REALITY
DreamWorks Animation will issue three classes of stock. Class A shares will have one vote per share. Class B shares controlled by Katzenberg and Geffen will have 15 votes per share. Allen's Class C shares will have only one vote per share but will retain the right to elect one company director. The prospectus said a follow-on offering was likely.
The move marks a further splitting apart of the parent DreamWorks that was founded in 1994 with the idea of merging old-style film, television and music production with new products designed for an emerging digital age.
Over the years, its music and video game businesses were sold off, while the TV group was partnered with broadcaster NBC. Live-action films have had a mixed record with hits like Spielberg's "Saving Private Ryan" and duds such as "Eurotrip."
Investment banks Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are joint book-running managers for the IPO. (Additional reporting by Angela Moore in New York, Reed Stevenson in Seattle and Jeffrey Goldfarb in London)
Wednesday July 21, 7:30 pm ET
By Bob Tourtellotte
LOS ANGELES, July 21 (Reuters) - Riding high on hit movie "Shrek 2," DreamWorks on Wednesday filed plans to spin off its animation unit, raising $650 million to pay down debt and fund new films in a move that further distanced the studio from the original vision of its founders.
The deal would separate DreamWorks Animation Inc. from the parent company formed nearly a decade ago by Hollywood moguls Steven Spielberg, David Geffen and Jeffrey Katzenberg with the goal of creating a digital-based studio of the future.
DreamWorks Animation, based in the Los Angeles suburb of Glendale, California, would be controlled by Katzenberg and Geffen. Katzenberg would be chief executive and Geffen would sit on the board, according to a filing with the U.S. Securities and Exchange Commission.
The filing did not disclose share price or timing details of the initial public offering, nor did it set a value for the company or say how big a stake the owners would hold after the IPO. A DreamWorks spokesman declined to provide details.
Roger Enrico, former chairman and CEO of PepsiCo Inc. (NYSE
EP - News), would be chairman. Spielberg would not hold a seat.Microsoft co-founder Paul Allen, an initial DreamWorks investor, would sit on the board and could cash out some of his original investment, although the filing did not provide any details on his plans.
A spokesman for Allen's investment firm, Vulcan Inc., declined to say whether he had any plans for his DreamWorks stake.
Hal Vogel of New York-based Vogel Capital Management, said deals like this often see management selling 20 percent to 25 percent of the company's shares, implying a value of $2.6 billion to $3.25 billion for DreamWorks Animation.
Of the money raised, $175 million would be used for capital and the balance will pay off debt, according to the filing.
DIGITAL RISK, FINANCIAL REWARD
"There's an excellent management team, a large production pipeline, and animated movies have proven to be very strong in terms of success," Vogel said.
But those positives for potential investors come with risk. DreamWorks Animation faces competition from Pixar Animation Studios Inc. (NasdaqNM
IXR - News) and The Walt Disney Co. (NYSEIS - News)The new company will focus mainly on computer-generated, or "CG," movies like "Shrek 2," which has been the most successful animated movie ever, raking in $425 million at North American box offices and more than $300 million internationally. The original "Shrek" garnered more than $450 million worldwide in 2001.
DreamWorks has fared less well with its hand-drawn animated movies. Last summer's "Sinbad: Legend of the Seven Seas" generated only $26 million at domestic box offices.
DreamWorks Animation lost $189 million last year on $296 million in revenue. Yet, behind "Shrek" in 2001, it posted a profit of $3.7 million.
Pixar has seen five straight hits, and investors who bought its shares in 1995 when its first film "Toy Story" hit theaters could have bought in the low $20s. They would be holding shares valued at $68.71 on Wednesday.
DreamWorks Animation, with some 1,200 employees plans five computer-generated movies through 2006, including "Shrek 3," "Madagascar" with the voices of Ben Stiller and Chris Rock and "Over the Hedge" with the voice of Jim Carrey.
It will premiere CG movie, "Shark Tale," in Venice this September, and a U.S. release is planned for October. An IPO would likely take place this fall between "Shrek 2" success and "Shark Tale" hype.
WAKE UP TO REALITY
DreamWorks Animation will issue three classes of stock. Class A shares will have one vote per share. Class B shares controlled by Katzenberg and Geffen will have 15 votes per share. Allen's Class C shares will have only one vote per share but will retain the right to elect one company director. The prospectus said a follow-on offering was likely.
The move marks a further splitting apart of the parent DreamWorks that was founded in 1994 with the idea of merging old-style film, television and music production with new products designed for an emerging digital age.
Over the years, its music and video game businesses were sold off, while the TV group was partnered with broadcaster NBC. Live-action films have had a mixed record with hits like Spielberg's "Saving Private Ryan" and duds such as "Eurotrip."
Investment banks Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are joint book-running managers for the IPO. (Additional reporting by Angela Moore in New York, Reed Stevenson in Seattle and Jeffrey Goldfarb in London)