DREAMWORKS TO TAKE ANIMATION DIVISION PUBLIC

Move Follows 'Shrek' Success; Fall IPO Planned

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LOS ANGELES (AdAge.com) -- In the wake of the monster success of its Shrek franchise, Hollywood studio Dreamworks SKG has announced plans to spin off its animation
'Shrek' is leading the way toward a Dreamworks Animation public offering.
division and hold an initial public offering this fall.

$650 million
Anticipated for months, the move is intended to raise as much as $650 million in common stock. Analysts said the timing capitalizes on the huge box office numbers of Shrek 2, and hedges bets on the upcoming October release of the underwater mob-themed Shark Tale.

"They're looking for a Pixar-style valuation," said David Miller, an analyst with Sanders Morris Harris. "Whether they receive it or not is up in the air at this point."

Industry watchers said the IPO, filed with the Securities and Exchange Commission on Wednesday, is Dreamworks' attempt to play in the big league of animation powerhouse Pixar Animation Studios.

Original plans
It also signals a dramatic shift from a decade ago when the studio's founders -- Jeffery Katzenberg, David Geffen and Steven Spielberg -- unveiled plans for a multimedia studio that encompassed music, Internet, film and TV, all on a seaside campus. But the music division was sold, the TV unit shuttered (although there's a series on the NBC schedule for fall called Father of the Pride.) There's no Internet business, and the studio abandoned plans to move to Playa Vista.

The SEC filing did not specify how much stock would be offered or at what price, facts that analysts say are critical to fully evaluating the offering.

A portion of the $650 million would be used to bulk up the coffers for production, and much of it to pay down debt, according to the filing. Paul Allen, the studio's largest shareholder, stands to recoup some of his initial $600 million investment in the studio.

Spielberg's operation
Dreamworks SKG founders Mr. Katzenberg and Mr. Geffen would head the public company, Dreamworks Animation Inc. Mr. Spielberg would continue his focus on live-action films at Dreamworks SKG, which will remain closely held.

Dreamworks has three animated movies in the pipeline for next year. Madagascar is the summer tent pole, with Over the Hedge and Wallace & Grommit scheduled for later in '05. Shrek 3 could hit screens in holiday 2006. The DVD release of Shrek 2, which has brought in some $425 million at the box office, is planned for November.

Dreamworks' track record in animation has been spotty, Shrek and its currently sequel notwithstanding. Its traditional hand-drawn animated films like Sinbad: Legend of the Seven Seas and The Road to El Dorado failed to draw large audiences. The studio intends to focus on computer-generated animation, on which Pixar has made its name, and release at least two movies a year.

Pixar
Pixar has carved its niche with a single film every 18 months to two years; the studio, headed by Apple Computer CEO Steve Jobs, has an existing deal with the Walt Disney Co. through next year. Whether the two will remain in business together has been the source of much speculation. Though Mr. Jobs could have his pick of Hollywood partners, studio heads have said they are not meeting with him, leading industry insiders to believe Mr. Jobs may still intend to stay at Disney.

Pixar closed at $68.71 a share on Wednesday and has a market capitalization of close to $4 billion.

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