DreamWorks Looks to Raise $725 Million

DreamWorks Animation SKG Inc. hopes to raise as much as $725 million in an upcoming initial public stock offering that could value the company as high as $2.64 billion, according to a Securities and Exchange Commission filing Tuesday.

The 29-million-share offering involves selling 27.5% of the company at $23 to $25 a share, providing the first valuation for the computer animation studio behind the “Shrek” franchise and the current hit “Shark Tale.”

But the amount is considerably less than the $4.58-billion market value for its main rival, “Toy Story” and “Finding Nemo” producer Pixar Animation Studios of Emeryville, Calif.

DreamWorks Animation is a planned spinoff of the 10-year-old DreamWorks SKG founded by moguls Steven Spielberg, David Geffen and Jeffrey Katzenberg, who will run the animation unit.

Although the amount to be raised was about in line with expectations, some analysts said the valuation was on the high side.

“That’s pretty rich,” said media analyst David Miller of Sanders Morris Harris in Los Angeles.

Miller pointed out that Glendale-based DreamWorks planned to release two computer-generated animation films a year, a much more ambitious schedule than Pixar, which releases a film about every 18 months.

If DreamWorks Animation sticks to such an aggressive release schedule, Miller said, that could increase the risk to investors because the movie business is already so volatile.

But the success this month of “Shark Tale,” which grossed more than $87 million at the box office through its first two weekends, bodes well for the IPO, said Tom Taulli, co-founder of Newport Beach-based IPO tracking firm CurrentOfferings.com.

“They delivered,” Taulli said. “It’s not often that you get a brand-name company like this on the market. Everybody knows this company, they know what they do.”

A DreamWorks spokesman declined to comment, citing SEC rules limiting discussions before an offering.

DreamWorks said in the filing that its stock would be traded on the New York Stock Exchange under the ticker symbol DWA. In addition to 25 million shares offered by the company, DreamWorks shareholders plan to offer 4 million shares. The company would have 105.6 million shares outstanding.

DreamWorks plans to use part of the proceeds to repay $355 million of a $405-million loan that the animation studio would assume from DreamWorks SKG. An additional $175 million would be used for “general corporate purposes, including working capital,” the filing says.

Another key goal of the offering is to provide liquidity for billionaire Paul Allen, the Microsoft Corp. co-founder who bankrolled DreamWorks in its early days, in case he chooses to cash out. Allen is selling 2.3 million shares in the offering, less than 10% of his holdings.

DreamWorks expects to complete the IPO within about a month.

As part of its SEC filing, the company included the contract for Katzenberg, who will serve as chief executive. Katzenberg would also “be entitled to industry-customary perks as are normally made available to entertainment industry studio chiefs.”

That filing shows that Katzenberg won’t have to fly commercial. According to the contract, “All studio business- related air travel by you shall be by private jet.”

The company said Katzenberg’s base salary would be $1 a year.

But the executive would be granted 721,629 shares of restricted stock that would vest over a four-year period, contingent on the company reaching unspecified targets.

According to the filing, if DreamWorks Animation had been a public company, during the first six months of this year, it would have reported $181 million in operating revenue and net income of $66.5 million.

For all of 2003, however, the animation studio would have reported operating revenue of $172.8 million and a loss of $158 million.