GE’s NBC Slow Pace During Negotiations Gave Viacom an Opening

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NEW YORK ( -- After nine months of discussions between General Electric Co.’s NBC Universal and DreamWorks, Viacom Inc. has swooped in and today announced it is buying the film studio for $1.6 billion. The acquisition helps Viacom shore up one of its biggest question marks -- the Paramount film studio -- in a critical time as it splits apart from CBS.
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The deal gives Paramount all of DreamWorks’ current development projects and a production partnership with DreamWorks founders Steven Spielberg and David Geffen. Messrs. Spielberg and Geffen will assume new employment agreements as producer/director and chairman, respectively, and be responsible for producing four to six live-action films a year. Jeffrey Katzenberg, the third founder, will remain CEO of DreamWorks Animation.

Deal includes film library
Paramount, which is now under the Viacom division run by Tom Freston, co-chief operating officer and co-president, also acquires all of Dreamworks’ live-action library, including films such as “War of the Worlds,” “Gladiator,” “American Beauty,” “Saving Private Ryan” and “Minority Report,” as well as TV properties such as “Las Vegas,” currently airing on NBC, and “Spin City.” Viacom expects to sell the DreamWorks library, valued at $850 million to $1 billion, to a third-party investor, which Viacom Chief Financial Officer Mike Dolan notes in an Securities and Exchange Commission filing, will help “us to reduce our investment in the transaction.”

The deal doesn’t include acquisition of DreamWorks’ profitable animation studio, DreamWorks Animation SKG, which produces films such as “Shrek,” but instead has a seven-year agreement to distribute the animated films.

Turnaround at Paramount
Viacom is optimistic the acquisition will help it accelerate a turnaround at Paramount. Some of its latest flops include a remake of the “Stepford Wives” and “Beyond Borders.” In March Paramount Chairman-CEO Brad Grey tapped Gail Berman, formerly Fox TV’s entertainment chief, as president to develop the creative side of the studio.

Merrill Lynch analyst Jessica Reif Cohen agrees the acquisition will deliver a timely push. In a note to investors this morning, she called the acquisition “an important step in turning around the Paramount film studio.” She noted the increased output will allow Paramount to quickly reach its target release schedule of 14 to 16 films per year by 2006 and creates the scale necessary to build out its own international distribution platform.

GE-owned NBC Universal had been considered the front-runner to acquire DreamWorks for the better part of 2005, but talks moved slowly thanks to GE’s rigorous acquisition analysis. The delays reportedly angered Mr. Katzenberg; Mr. Spielberg, on the other hand, was said to have preferred an NBC Universal acquisition. He said in a statement announcing the deal: “I was saddened that after long negotiations and many compromises we were unable to come to terms with Universal's parent company, GE.”

Viacom will be contributing about $775 million in cash and assume about $825 million in debt and other obligations. The company’s stock rose nearly 1.5% in early-morning trading.

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