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The Misadventures of DreamWorks by Karl Cohen
Jeffrey Katzenberg, DreamWorks chief, plays hardball in the media market. photo: courtesy J. Katzenberg
IN THE LAST ISSUE OF CINESOURCE,
we reported that Japan’s SoftBanks Corporation had discussed buying DreamWorks Animation (DWA) for about $32 a share. That would make the value of DWA about $3.2 billion.
Meanwhile, the business press reported Jeffrey Katzenberg, who heads DWA (they have studios in Redwood City and Los Angeles), saying he thought his company was worth more than that so discussion about a possible sale was terminated.
As a publicly owned company, DWA has a problem which makes its stock unattractive to many buyers: its price oscillates widely, mainly based on the success of their features. In 2013, it had a share price high of almost $40 but low of $19 this year.
Possible Deal with Hasbro
After the deal with SoftBanks fell through, DWA continued to explore ways to become part of a larger diversified corporation. On November 13 it announced it was holding possible merger talks with Hasbro.
There was also some sort of negotiation going on with Hearst to turn Awesomeness TV, a YouTube channel aimed at teenage girls, into a joint venture. (Hearst is a corporation that DWA purchased 19 months ago). Announcing that both negotiations were underway may have been a trick for raising the value of their stock—indeed, it went up $2 a share the next day.
Hasbro is the nation’s second largest toy company and it is estimated to be worth over $7 billion. On November 13th, the Hollywood Reporter suggested Hasbro might buy an interest in DWA for about $35 a share.
Becoming a partner with Hasbro would give DWA greater presence in the consumer product marketplace. Hasbro toy lines have been the stars of features include “Transformers,” “G. I. Joe” Toys and “My Little Pony.” It was clear Katzenberg’s vision for his company is being part of a larger diversified corporation that will rival Disney, his former employer.
'How To Train Your Dragon 2', DreamWorks' 2014 offering. photo: courtesy DreamWorks
Hasbro Walks Out
The day after a possible sale was announced it was reported the talks were called off. Why?
The NY Times had just reported the deal was in the final stages of negotiations. The announcement had caused shares of Hasbro fall 6% in two days. One trade paper suggested DreamWorks might have been asking too high a price and/or Hasbro may have been scared off by the extensive press coverage.
Although DWA stock had gone up to about $26 at one point, it wasn’t high enough to show that investors were confident that a share would be worth $35. When the Hasbro deal was killed, DWA stock quickly fell bellow the price it had been selling before the Hasbro deal had been announced. Analysts explained that while the merger made sense, the price was too steep.
The Talks Were Sabotaged!
On November 19th, the Hollywood Reporter reported the talks were sabotaged by an anonymous letter! The paper said DWA tried to keep the talks secret, but somebody leaked the news to the press and that the leak had caused the damage.
Katzenberg cozies up on the red carpet with some of yesteryear's animation stars. photo: courtesy DreamWorks
Apparently once the talks were made public Disney executives went crazy. They informed Hasbro that, “they would deem the toy manufacturer a competitor should it acquire DWA, imperiling huge contracts involving Marvel, Star Wars and a very valuable agreement set to begin in 2017 for Hasbro to produce ‘Frozen’ merchandise and toys based on other titles.”
The Hasbro deals with Disney are worth billions so it is no wonder the talks ended. Announcing the talks were off resulted in Hasbro stock going up again and DWA's stock falling 37% before leveling off. After having two failed merger talks will Katzenberg try for a third deal or will he wait for his stock to go up to the point a deal would make sense to prospective buyers?
Katzenberg appears to have an enormous ego so I hope he learned a lesson and will wait for a more favorable time to discuss a possible merger.
Not much is known about the leak that appears to have killed the talks. It was anonymous, detailed, and it was sent to several papers. It was by somebody with inside information as the person knew other business changes at DWA. They suggested that DWA releasing “Kung Fu Panda 3” a week after “Star Wars: Episode VII” comes out might be a serious marketing mistake.
DreamWorks Postpones Release of Next Summer’s Feature
DWA has announced “B.O.O.” will not be releases next summer. Voiced by Seth Rogen, Melissa McCarthy and Bill Murray, the animated family film “B.O.O.” revolves around a top-secret government agency that employs ghosts to protect humans from being haunted. When the agency itself comes under attack, two new recruits set out to save the day.
Katzenberg with another monster, literally, animation star—Shrek. photo: courtesy DreamWorks
No reason was given for dropping “B.O.O.” from their release schedule and no new release date has been announced. Perhaps it still has major script problems. (Someone who had worked on it told me it has undergone a lot of script revisions.)
Perhaps DWA now thinks releasing three films in one year might be unwise. I also wonder if the summer has become too risky a time of year to bring out overly expensive features, so-called tent pole productions.
In fact, the only thing Disney released last summer was a "low" budget sequel and it didn't do too well in the US.
DWA plans to release “Home” on March 27 and “Kung Fu Panda 3” on Dec. 23. The company could decide to open “B.O.O.” in the fall instead of “Kung Fu 3,” but I would think that since they probably want to make a major profit to make the value of their stock go up, releasing the “Panda” feature is the safer choice.
Karl Cohen is an animator, educator and director of the local chapter of the International Animation Society and can be reached .Posted on Nov 26, 2014 - 08:30 AM