Paramount To Buy Dreamworks

Paramount Pictures said Sunday it had agreed to buy independent film studio DreamWorks SKG Inc. in a deal worth $1.6 billion in cash and debt.

The deal strengthens Paramount's live action film business and gives the unit of Viacom Inc. access to DreamWorks's library of 59 films, including the Oscar-winning "American Beauty" and "Gladiator."

It also marks the end of an 11-year dream for Steven Spielberg, Jeffrey Katzenberg and David Geffen, who had ambitious goals for DreamWorks that included television, music, films and the Internet.

The announcement was made by Brad Grey, chairman and CEO of Paramount Pictures, who noted that enhancing Paramount's pipeline of pictures is a "key strategic objective in restoring Paramount's stature as a leader in filmed entertainment."

The announcement did not break down the amounts of cash and debt involved in the deal.

The agreement does not include DreamWorks Animation SKG Inc., the most profitable part of the company that went public last year. But Paramount does gain the right to distribute the studio's lucrative animated films, including the "Shrek" franchise.

Paramount also said it was in advanced negotiations with a third party to sell DreamWorks' film library but would retain the right to distribute the titles.

Upon completition of the deal, expected to close early next year, Paramount would sign new employment agreements with Spielberg as a producer and director, and Geffen, who will become chairman of DreamWorks.

Spielberg and Geffen will be responsible for producing four to six live action films a year.

Paramount said it will also make an exclusive seven-year distribution deal with DreamWorks Animation and will have the rights to produce television shows using DreamWorks Animation characters.

The agreement caps months of talks involving the acquisition of DreamWorks.

NBC Universal was interested last summer, but those exclusive talks ended in September after the two sides could not agree on a price or resolve creative issues surrounding Spielberg.

NBC Universal re-entered the bidding in October.

Paramount was initially interested in bidding but could not get permission from its parent, Viacom, which was in the process of splitting into two publicly traded companies.

The studio jumped back into talks unexpectedly this week after Viacom's board approved a bid. Viacom agreed to an offer only if it could split the risk with outside investors.

DreamWorks was created in 1994. It had grand ambitions to become a major player in films, music, animation, television and the Internet.

DreamWorks was forced to scale back its plans over the years. It abandoned plans to build a high-tech studio lot in Los Angeles in 1999, sold DreamWorks Records to Universal Music Group in 2004 and has curtailed its TV production. It's Internet site, Pop.com, also folded.

DreamWorks has had some hits over the years and more than its share of misses, including this year's "The Island," which tanked at the box office last week and almost certainly will not make back its more than $120 million cost.

The studio has found it harder to survive as an independent company. Last year, it spun off its animation division in part to repay its initial investors, including billionaire Paul Allen.

But difficulties at DreamWorks Animation caused its stock price to falter and forced it to cancel plans for a secondary offering which would have raised the money to repay Allen.

Spielberg has a long association with Universal. The studio gave the young director his first job making television episodes and later feature films.

His Amblin Entertainment office is on the Universal lot, as is the DreamWorks headquarters.

DreamWorks also has a distribution agreement with Universal.

Viacom has been rebuilding its troubled Paramount division after several years of poor results.

Viacom hired talent agent and producer Brad Grey earlier this year to lead the studio's turnaround.