Like Jimmy’s crew after the Luftansa heist in Goodfella’s investors who cashed out in Alibaba’s (BABA) record-setting IPO are itchy to put their windfall to work. The biggest of the outside investors is already making noise in an unlikely place. SoftBank is trading down over 1% in Japan on a Hollywood Reporter story that the Japanese company is in talks to acquire DreamWorks Animation (DWA) for $3.4 billion.
DreamWorks CEO Jeffrey Katzenberg would be part of the deal, according to these reports. The former Disney (DIS) executive who started the original DreamWorks in 1994 with Steven Spielberg and David Geffen. DreamWorks Animation was spun off as a freestanding operation in 2004. Results have been mixed, to be polite. Until this rumor started picking up shares were down 37% in 2014 after disappointing results for "Mr. Peabody and Sherman" and "How to Train Your Dragon 2." The latter only earned $176 million at the box office, short of the original’s take and a huge disappointment given the weak competition.
DreamWorks’ reliance on hits has proven to be a major problem over the years. After scoring huge with "Shrek," which in the context of Katzenberg’s roughly half a billion dollar lawsuit with Disney reads like an hour and a half of inside jokes at Michael Eisner and Disney’s expense DreamWorks has struggled to find franchise success. Revenues for 2014 are generously estimated to return to 2012 levels.
Even assuming Katzenberg and his crew could find another "Shrek" or "Kung Fu Panda" the financial picture for content makers isn’t what it once was. DreamWorks has been trying to diversify its revenue base for years but still gets 70% of it’s take from box office. That makes the studio and other film makers increasingly dependent on the Chinese market. According to DreamWorks’ most recent 10k they get about half the profits in China as are generated from each US ticket sale.
Enter SoftBank and CEO Masayoshi Son. Japan’s second richest man, Son is worth an estimated $15 billion and is a legend for fearless deal making. This is a guy who famously won the rights to carry the iPhone exclusively in Japan in 2005; two years before the phone existed. Son’s ambition is to turn SoftBank into a $2 trillion company by 2040. SoftBank was sitting on $17 billion in cash at the end of June; before taking $5 billion in profits out of the Alibaba IPO.
If it doesn’t seem like DreamWorks would fit into SoftBank’s world that’s only because you’re not thinking big enough. SoftBank has some 1,300 different major investments. Until August it was trying to buy T-Mobile (TMUS) and that same month it bought the company that makes the mobile app “Clash of the Clans."
Son wants content for his networks. DreamWorks needs a deep pocketed suitor to help it stay afloat and expand its nascent Chinese operations. At $32 a share DreamWorks investors are getting a more than 40% premium.
This is the type of fairy tale ending Shrek famously used as toilet paper. Look for Katzenberg to be much more receptive.
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