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Viacom Finalizes Deal For DreamWorks

10 Dec, 2005 By: Thomas K. Arnold

News reports say Viacom has agreed to buy DreamWorks SKG for $1.6 billion, pairing the boutique studio with Paramount Pictures in a deal that could dramatically alter the home video landscape.

Viacom and Paramount reportedly sealed the acquisition Friday in a meeting between DreamWorks principals David Geffen and Steven Spielberg, Viacom chief executive Tom Freston and Paramount chairman Brad Grey. The majority of the money reportedly will come from private equity investors; the price also is said to include the assumption of about $400 million in DreamWorks' debt.

DreamWorks previously had entertained a takeover bid from General Electrics-owned NBC-Universal, but the two parties failed to come to terms. Talks officially broke off Friday, news reports say; a short time later, DreamWorks confirmed the Viacom deal.

The move nearly doubles Paramount's theatrical slate. Paramount has a production lineup of 11 films for 2006; DreamWorks has nine completed movies, including the Clint Eastwood-helmed Flags of Our Fathers and a musical, Dreamgirls, that was cofinanced with Paramount.

The deal also gives Paramount domestic and international distribution rights to movies made by DreamWorks Animation, the spin off run by Jeffrey Katzenberg.

Paramount also gets DreamWorks' 60-movie library.

The deal has a pronounced effect on home entertainment. Universal Studios Home Entertainment's No. 3 market share ranking was based on the inclusion of DreamWorks films, which it distributes. And in the fourth quarter of this year, two of the biggest DVD sellers, Madagascar and War of the Worlds, come from DreamWorks. War of the Worlds was co-produced and distributed theatrically by Paramount.

Paramount Home Entertainment, in turn, has compensated for its lean theatrical slate by building a strong direct-to-video and TV-based business, exploiting franchises such as Comedy Central, MTV and Nickelodeon.

Viacom's board reportedly approved the purchase of DreamWorks on Thursday. Last fall, the board nixed a request by Paramount executives to open talks with DreamWorks. The difference is that this time private investors have been brought in.

A Paramount executive told the New York Times News Service that private equity investors would put up $800 million to $1 billion, while Viacom would put up $600 million to $700 million.

NBC-Universal, which had been in serious negotiations with DreamWorks since mid-October, had offered substantially less; $700 million plus the assumption of about $400 million in debt, the news reports said, citing information provided by an executive close to those talks.

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