Japanese Company SoftBank In Talks To Buy DreamWorks Animation: Explained
Has DreamWorks Animation been purchased by another company?
No, not yet. News that the publicly-traded DreamWorks Animation was in discussions with Japan’s SoftBank broke last Saturday afternoon via Hollywood Reporter. DreamWorks has refused to comment on the negotiations, saying, “We don’t comment on rumors and speculation.” DreamWorks’ board held an emergency meeting last Thursday to discuss the offer.
What is SoftBank?
SoftBank, the Japanese company that is interested in purchasing DreamWorks, is a telecommunications and Internet conglomerate that ranked 135th on Fortune’s 2013 Global 500 list with revenues of nearly $67 billion. The company, which has a market cap of US$92 billion, acquired a majority stake in the US phone carrier Sprint Nextel in 2012.
SoftBank also owns 1/3 of the Chinese Internet giant Alibaba Group, a stake that is worth over $70 billion. SoftBank owns majority stakes in companies across a wide range of industries including data center operations (IDC Frontier), online gaming (GungHo Online Entertainment, Supercell), publishing (SB Creative) and financial services (SBI Group). The company also has investments in online companies including Yahoo Japan and Zynga.
How much did SoftBank offer DreamWorks?
SoftBank offered $3.4 billion for DreamWorks, or $32 a share. That’s signficantly higher than DreamWorks’ market valuation of $1.89 billion last week, when its stock price was trading around $22 a share. DreamWorks stock shot up to over $28 today.
Will DreamWorks CEO Jeffrey Katzenberg consider that amount to be enough?
Katzenberg has stated in the past that he thinks his company is worth at least as much as Pixar, which was purchased by Disney for $7.4 billion in 2006. But neither DreamWorks’ films nor its characters have shown the lasting power of Pixar’s beloved library. It’s hard to see how Katzenberg will achieve the same price that Pixar was able to command, but he may get close to the $4 billion that Disney paid for Marvel and Lucasfilm each.
Why would SoftBank want to own DreamWorks?
Financial analyst Atul Goyal explained to the Wall Street Journal that:
Such a deal would make sense for SoftBank because it would help the company expand its offering of media content, which now features mostly mobile games. As growth in smartphone penetration slows, mobile network operators like SoftBank, which owns one of the three main cellular carriers in Japan as well as Sprint Corp. in the U.S., will rely increasingly on content to attract customers.
As part of its content strategy, SoftBank also attempted to purchase Universal Music Group from Vivendi last year. Their $8.5 billion bid was rejected.
Who owns SoftBank?
Korean-Japanese businessman Masayoshi Son is the founder and CEO of SoftBank. He is the richest man in Japan with an estimated net worth of $16.6 billion. Son is something of a futurist, and recently developed a $2000 robot called Pepper that can “read” human emotions. Below is a video of Son interacting with Pepper. He’s also a dreamer and once presented an outlandish 300-year business plan for SoftBank.
If the deal goes through, how will this affect the creative side of DreamWorks Animation?
Unknown at this point. While SoftBank has been hands-on with its bigger investments like Sprint, it has been known to take a hands-off approach with the creative companies it invests in, like Clash of Clans producer Supercell.
If SoftBank buys DreamWorks, will they send more jobs out of the United States?
DreamWorks doesn’t need a foreign company to encourage it to send work overseas; it has already been doing plenty of that on its own. Part of the studio’s business strategy has been to shift feature animation production to China and India, where costs are lower than the United States. DreamWorks will continue to expand its overseas production capacities, and a sale of the studio shouldn’t have much impact on this pre-existing strategy.
If the deal doesn’t work out, will another company purchase DreamWorks?
DreamWorks Animation’s business model is widely acknowledged in the financial world to be too risky and unsustainable for the long-term. The company’s creative reputation has also taken a big hit as most of its recent films have underperformed, forcing the company to take three write-downs in a 2-year period. DreamWorks CEO Jeffrey Katzenberg has reportedly explored the idea of selling DreamWorks in the past, but had recently refocused on building a more stable company. The company has been aggressively expanding in the past 2 years by acquiring online channels, moving into series production, expanding its intellectual property base for licensing and merchandising, and most importantly, growing the company’s presence in China through Oriental Dreamworks. Nevertheless, DreamWorks remains a boutique studio and will have trouble growing in the current marketplace without the support of a deep-pocketed backer.
(Jeffrey Katzenberg photo via Shutterstock.)