SoftBank is reportedly holding discussions with DreamWorks Animation (DWA), the studio behind animated blockbuster series such as "Shrek," "Kung Fu Panda" and more recently "How to Train Your Dragon."
Word of the deal first came out of Hollywood Reporter, which said that the Japanese conglomerate is offering to purchase DWA for $3.4 billion, or about $32 a share. The amount is 43 percent more than DWA stocks, which had a closing price of $22 per share and a market capitalization of $1.9 billion on Friday. Sources, however, say that the two companies are in the early stages of negotiation and it is possible that a deal will not push through.
The acquisition would make SoftBank the second Japanese company to own a Hollywood studio and would provide DWA, the largest independent film studio in the United States, the financial leverage it needs in negotiations with content distributors. It will also help the studio cement its expansion into the East, where it currently has a 45 percent stake in DreamWorks Oriental, a Shanghai-based studio with 150 animators that produces animation films for the Chinese market.
DWA CEO Jeffrey Katzenberg, who founded the live-action DreamWorks SKG studio with legendary director Steven Spielberg and music executive David Geffen 20 years ago before spinning off to head DWA, is said to be looking to expand his studio into television, online video and consumer products. Although the company had made it big with numerous box-office hits, its stock tends to go up and down along with each film's individual income. The company saw shares rise with its latest production, "How to Train Your Dragon 2," but it saw flops in some of its previous films, such as "Mr. Peabody & Sherman," "Turbo" and "Rise of the Guardians."
Moreover, it is facing stiff competition from smaller studios such as Blue Sky Studios, which is known for producing the "Ice Age" series of films and "Despicable Me" creator Illumination Entertainment, which make their films at costs far below DWA levels, which has also pressured Katzenberg to cut production costs, as well as bigger studios led by Walt Disney Pictures.
In its second-quarter earnings call, DWA posted a net loss of $15.4 million on a revenue of $122.3 million. Shares have seen a 37 percent decline this year, with two of three of its most recent films failing to accumulate mass appeal. "How to Train Your Dragon 2," which earned $609 million gross income at the box office, was forced to take writedowns for "Mr. Peabody and Sherman" and "Turbo."
SoftBank, on the other hand, is loaded with cash after investing $20 million in Chinese e-commerce company Alibaba 14 years ago. On Alibaba's first week in trading, SoftBank's shares were worth $71 billion.
Analysts believe the acquisition could fuel SoftBank's efforts to expand its mobile network in the U.S., despite SoftBank CEO Masayoshi Son's earlier decision to stop pursuing the merger of SoftBank-owned Sprint with T-Mobile. Last month, SoftBank acquired Finland-based Supercell Oy, maker of games such as "Clash of Clans." The company also purchased GungHo Online Entertainment Inc., a Japanese game developer known for "Puzzle & Dragons."
Earlier this year, SoftBank hired former Google executive Nikesh Arora, a key player in the growth of Google's search advertising business, to head SoftBank's expansion into content. Arora is said to have led the negotiations with Katzenberg.
"Content, media and Internet businesses in the U.S., which they can expand globally should be the main target for SoftBank," says analyst Satoru Kikuchi at SMBC Nikko Securities.
