DreamWorks shares climb on news it's hunting buyer

Shares of DreamWorks Animation SKG Inc. jumped Wednesday on reports that the maker of the Shrek and Kung Fu Panda movies is seeking a buyer.

The studio is exploring a potential sale, according to people with knowledge of the situation who asked not to be identified as discussing private information. Universal Pictures parent Comcast Corp. is in talks to buy DreamWorks for more than $3 billion, the Wall Street Journal reported, citing unnamed people familiar with the matter.

The animation studio, one of the few independent players left in Hollywood, would remain a separate brand from Universal's Illumination Entertainment, the newspaper reported, citing unidentified sources. DreamWorks Animation is run by founder and Chief Executive Officer Jeffrey Katzenberg.

Adding DreamWorks Animation would bolster Comcast's children's lineup and include online assets such as Awesomeness TV, which targets millennials on YouTube. For Katzenberg, who has previously tried to sell DreamWorks Animation, Comcast offers protection from the ups and downs of a small studio with a stock price dependent on box-office hits.

"Animation in terms of content is very valuable, and DreamWorks has been underperforming for a number of years," said Neil Campling, a media analyst at Aviate Global in London. "This isn't the first time we've heard suggestions of it being for sale."

Dan Berger, a spokesman for DreamWorks Animation, declined to comment, as did John Demming, a spokesman for Comcast. Comcast executives also said during a first-quarter conference call Wednesday that they wouldn't comment on merger speculation.

DreamWorks Animation shares rose $5.08, or 18.7 percent, to close Wednesday at $32.20 after advancing as high as $32.30 in New York. Comcast shares rose 25 cents to $61.30.

Comcast would make an ideal parent for DreamWorks, especially with its ownership of Illumination, maker of hit films Minions and Despicable Me, Campling said. He rates Illumination as the No. 3 animation studio behind Disney and Pixar.

Katzenberg has been expanding the television business at DreamWorks Animation, selling films and cartoon series like The Adventures of Puss in Boots to Netflix as he seeks to break a dependence on the box office.

That might be attractive to Comcast, the biggest U.S. cable company, which is looking for ways to grow as pay-TV customers cut the cord and younger adults opt for online services such as Netflix.

Deal-making has been heating up in Hollywood, with Viacom Inc. saying it's looking to sell part of Paramount Pictures.

"Content owners have become increasingly valuable as of late, and we could argue Comcast sees potential value in the library of franchises, characters that could be integrated," said Eric Wold, a B. Riley & Co. analyst covering the entertainment industry.

Merger speculation has surrounded DreamWorks Animation since 2014, when it had approaches from Hasbro Inc. and Japan's SoftBank Group Corp. After a series of film write-offs, Katzenberg in early 2015 implemented a wide ranging restructuring, cutting 18 percent of the company's workforce and selling its Glendale, Calif.-based campus after costs swelled.

The studio also committed to reducing its film costs and the number of films it made each year to two. Katzenberg said he would refocus on making his features profitable. There have been some bright spots, with the studio seeing some success with Home, its only feature last year, and its growing TV business.

Comcast's Universal Pictures comes off its best year ever in movies but will face the challenge of keeping up with Walt Disney Co. -- owner of LucasFilm, Marvel and Pixar -- which will produce an estimated record number of billion-dollar movies in 2016. Comcast's NBCUniversal business -- which includes TV, films and theme parks -- generated about 38 percent of total revenue and 30.5 percent of operating income last year.

Despite the report of talks, a deal doesn't make sense, said Doug Creutz, an analyst with Cowen & Co. He said in a research note that DreamWorks Animation had too little to offer Comcast.

"Given the company's continued uneven box office performance and marginal profitability, we have a hard time believing any deal will happen, particularly given the lack of strategic logic for Comcast," Creutz wrote.

Business on 04/28/2016

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