Dreamworks Animation on merger's menu

The corporate “deal chatter” has become more intense lately — a phenomenon that usually signals approaching mergers and acquisitions.

The nagging question: Which of the rumors will emerge as reality?

Two prime sectors of speculation focus on DreamWorks Animation and NBC Universal.

Insiders say Time Warner is exploring a bid to acquire DreamWorks Animation, the publicly owned company that presently distributes its very successful films through Paramount. An “out clause” would permit DreamWorks Animation to terminate its Paramount deal next year provided it paid $150 million to that company or that one-third of DWA were acquired by another entity.

A Warners bid might prompt a counteroffer from Disney, which has now digested the DreamWorks live-action features unit — that entity is now fully funded after an exhaustive round of talks with bankers.

Of course, Viacom too could be motivated to match any bids for DWA to protect the flow of distribution revenues to Paramount — three major animated features will be released in 2010. Relations between leaders of Paramount and the DreamWorks players have been marred by animated animosity, however. David Geffen and Jeffrey Katzenberg have controlling stakes in DWA, with the presence of Steven Spielberg always looming in the background.

GE, meanwhile, must re-assess its attitude toward NBC Universal given the probability that Vivendi will sell its 20% stake in that company. Purchase of the French company’s stake could represent a $4 billion-plus commitment for GE, which in the past has weighed the option of exiting the entertainment business entirely.

GE lately has given indications it may hold onto NBC Universal, which means it may try to defer or re-negotiate the Vivendi deal — always a problematic situation with the French.

Driving these and related rumors is a growing consensus that the entertainment industry is entering a new period of consolidation. According to one CEO, “The majors are structured in a way that’s too costly and cumbersome to remain profitable in an age of digital distribution.”

Last week, veteran money manager Mario Gabelli told Barron’s, “A round of consolidation will occur in the next six to 12 months because of the costs of financing, prints and advertising, the benefits of globalization and such. We hear talk of something going on.”

The partners in megadeals, as in marriage, tend to view their unions from different perspectives over time. Robert Iger took a lot of heat for paying more than $7 billion to acquire Pixar, but that criticism has melted given Pixar’s remarkable contributions in film, theme parks and other areas.

Brad Grey is now heralded for steering Paramount’s acquisition of the now-departed DreamWorks. Even though that entity is now ensconced at Disney, Paramount retains key properties as well as executives like Adam Goodman. It doesn’t retain the $50 million in overhead, however.

Sumner Redstone was steamed when Rupert Murdoch snapped up MySpace for $580 million in 2005, and Redstone fired Tom Freston as a result. But now that Facebook has been a greater beneficiary of the social networking boom, Redstone theoretically could get a second chance at MySpace, which could become a good fit with the MTV networks in showcasing music.

And, of course, the recent deal under which Endeavor essentially acquired the William Morris Agency with William Morris money has yet to be subjected to its next level of analysis.

Of all the current acquisition rumors, those involving DreamWorks Animation likely will stir the most interest for several reasons. DWA is essentially a new company with revenues of $650 million that was started from scratch by Jeffrey Katzenberg. While DVD revenues have been tumbling across the industry, family-oriented DVDs have been more resistant to the downtrend.

Time Warner won’t comment on the rumors, but Jeffrey Bewkes, the TW CEO, has declared his determination to rebrand his mega-corporation as a content company. With AOL and Time Warner Cable now history, and the future of the Time publishing interests under scrutiny, the pressure is on Bewkes to indicate his strategic direction.

On one point, most of the CEOs agree: There will likely be fewer companies around three years from now than there are at the present. No one, however, pretends to know how all this will happen.

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