Which Suitor Gets Dreamworks?

NBC Universal still looks like the leading candidate to buy the studio. But Paramount is circling, and a third bid could be in the offing

By Ronald Grover

The hottest ticket in Hollywood these days is Dreamworks SKG. The studio, launched in 1994 by Hollywood moguls Steven Spielberg, Jeffrey Katzenberg, and David Geffen, seems to be getting new bids by the day.

First there was NBC Universal (GE ), now published reports have Paramount Pictures preparing a bid, and sources close to Dreamworks say yet a third offer could be in the offing.

If it all sounds like the dealmaking version of Shootout at the OK Corral, don't worry. Dreamworks is all but promised to NBC Universal, say sources with knowledge of the deal.

The General Electrics unit currently distributes Dreamworks films on DVD and to theaters in overseas markets, and came within hours of a purchase valued at $1.4 billion in equity and debt assumption, say these sources. That has given Viacom's (VIA ) Paramount studio new inspiration to press ahead with a bid two months after it had withdrawn from negotiations with Geffen, who has been handling the talks.


  Now it appears that Geffen is playing Universal off against potential new bidders, including Paramount. The Dreamworks dealmaker has already applied pressure to NBC Universal by telling GE executives some weeks back that he intended to end Universal's current DVD and distribution deal when it expires next year. That's because NBC Universal had triggered a provision in its agreement with Dreamworks by beginning to unwind its foreign distribution operation, which was run as a joint venture with Paramount. Under the arrangement, Dreamworks has an "out" in its contract if Universal changes the structure of its distribution setup.

Why would Geffen pull the rug from under NBC Universal? The longtime music executive is said to be angered that GE executives, who are known to require stringent financial analysis before making any deal, delayed negotiations on several occasions by demanding more financial information from Dreamworks. More recently, say those with knowledge of the talks, NBC has balked at Geffen's asking price: $1 billion in equity and around $400 million in assumption of debt.


  The Paramount offer most likely is a stalking horse, in some measure prompted by Geffen's displeasure with Universal. Paramount is said to be close to raising $800 million in private equity for the deal, and could make a bid by the end of December. But that still may not win the day.

That's because Spielberg, considered the big draw in any deal for Dreamworks, has expressed a strong preference to stay with Universal, which made his megahit ET: The Extra-Terrestrial and is home to his Amblin Entertainment production unit. Indeed, last year, Spielberg extended his lease with Universal to house the adobe-style offices where he and several of his executives work.

Still, this is Hollywood, where dreams run large. Maybe Paramount will grab Dreamworks, where it would get a library of such Class A films as Oscar-winner American Beauty. But then again, dreams are meant to be dashed, especially when The Three Amigos seem to hold all the cards.

Grover is Los Angeles bureau chief for BusinessWeek

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