DreamWorks Animation stock soared more than 25% on the first trading day since reports first surfaced that the studio was in early talks with Japanese wireless carrier SoftBank about a possible merger.
According to The Hollywood Reporter, SoftBank is willing to pay as much as $32 per share for the studio, or about $3.4 billion. That represented a 43% premium to DWA shares on Sept. 26, but it is a gap that is closing fast.
While all sides have remained mum on the reports, DreamWorks’ stock continues to soar. Shares rose as high as $28.97 each (up $6.61 or 29.6%) in early trading. The stock was priced at $28.17 each (up $5.81 or 26%) in early afternoon trading Monday.
SoftBank has certainly been aggressive on the deal front since buying a controlling stake in Sprint in 2013 for $21.6 billion. The wireless carrier had been investigating a takeover of Deutsche Telekom’s T-Mobile unit, but dropped those plans about two months ago because of regulatory concerns.
SoftBank also has expressed a desire for content – last year its $8.5 billion bid for Vivendi’s Universal Music unit was rejected as too low.
DreamWorks would give SoftBank a content foothold in the U.S. – its movie studio has released such animated hits as the Madagascar and Shrek series'. On the TV front, it produces Monsters vs. Aliens, Kung Fu Panda: Legends of Awesomeness and The Penguins of Madagascar for Nickelodeon, as well as an animated series Turbo, for over-the-top pioneer Netflix. But the studio only releases about two theatrical films a year and has had recent stumbles with The Adventures of Mr. Peabody and Sherman and How to Train Your Dragon 2, each of which had disappointing box office returns. Analysts also wondered about the benefits of a deal.
“For SoftBank, it is unclear how DWA’s content can be used to create a meaningfully differentiated offering, particularly in light of DWA’s relatively limited annual production volume,” wrote Morgan Stanley media analyst Ben Swinburne in a note to clients.
A deal would solve some problems for DWA, which was spun off from DreamWorks SKG studio in 2004 and is headed by former Walt Disney Co. executive Jeffrey Katzenberg. The company has been looking for a buyer for years, and with SoftBank could land the deep-pocketed partner it needs to compete. SoftBank also was an early investor in Chinese electronic commerce company Alibaba – it owns 30% of the company – and could provide DreamWorks with a needed distribution channel in Asia.