Can SoftBank save DreamWorks (DWA)?

After turning a $20 million investment into $71 billion in Alibaba (BABA), SoftBank’s (SFTBY) Masayoshi Son is reportedly attempting to acquire DreamWorks Animation (DWA).   If this deal goes through, it will be added to Softbank’s collection of 1,300 stakes in companies varying from video streaming platforms to the mobile carrier Sprint.

The deal for DreamWorks Animation would be valued at $3.4 billion, about $32 per share and a premium of 43% to the stock’s closing price on Friday.  At this stage, the deal is only in talks and speculation and has not been formally considered by senior executives.

About a year and a half ago, DreamWorks CEO Katzenberg had previously looked for a buyer for the animation studio.  This may be due to the fact that DreamWorks is Hollywood’s smallest movie studio delivering only two or three films a year. 

DreamWorks attempted to solve this issue by partnering with Paramount in 2005, but then later left the partnership and signed a $1.5 billion deal to produce films with India’s Reliance ADA group.   Reliance provided $325 million of equity to fund the recreation of DreamWorks SKG into DreamWorks Studios, an independent entity.

Current Financial Positions

DreamWorks has reported two consecutive quarters of losses.  For the quarter that ended June 30, DreamWorks Animation lost $15.4 million compared with a profit of $22.3 million in the period a year earlier. 
Gross profit decreased about 56% from the period before from a value of $80.16 million to $34.745 million.  The same story goes with cash and cash equivalents that decreased by about 66% from the period before, but was made up for in intangible assets, net of accumulated amortization that increased by about 32%.

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