Comcast reportedly in talks to buy DreamWorks Animation

Media conglomerate Comcast Corp. is reportedly in talks to buy DreamWorks Animation for more than $3 billion, a significant premium over the Glendale’s studio’s current market value of $2.35 billion.

The potential acquisition would offer benefits to both companies.

DreamWorks, run by Hollywood veteran Jeffrey Katzenberg, has produced films including “Shrek,” “Kung Fu Panda” and “How to Train Your Dragon.” But it has struggled to thrive as a standalone animation studio. Because it is not part of a large diversified media company, it does not have the ability to easily absorb losses when movies misfire at the box office.

Philadelphia-based Comcast is the cable operator that owns Universal Pictures, which has its own robust animation business Illumination Entertainment, which had a huge hit last year in the “Despicable Me” spinoff “Minions.”

A combination could give Comcast and Universal further inroads in China, where Katzenberg has built a substantial presence. Comcast also has successful theme parks and consumer products businesses, which could benefit from the inclusion of popular animated characters.

The potential acquisition was first reported by the Wall Street Journal, citing sources. Representatives of DreamWorks Animation declined comment and Comcast officials could not be reached for comment.

The talks may not result in a deal. Indeed, previous efforts to sell DreamWorks Animation fizzled when Japan’s SoftBank ended talks to buy the Glendale studio. Toy maker Hasbro also expressed interest in buying DreamWorks but those talks also collapsed over a year ago. There was also speculation that 21st Century Fox would buy the company.

“We would prefer to see how this plays out,” said Eric Wold, an analyst with B. Riley. “There were at least three reportedly interested buyers of DreamWorks Animation back in 2014 that never developed.”

DreamWorks Animation once dominated the animation industry but has struggled in recent years to replicate the success of its earlier blockbusters such as “Shrek” while facing growing competition from rivals such as Disney and Universal’s own Illumination studio.

That was underscored last year when a series of box office duds prompted the company to cut 500 jobs, close its studio in Northern California and overhaul management. Merging with a media conglomerate like Comcast would give it more of a financial cushion to withstand the uncertainties of the fiercely competitive animation business.

Katzenberg vowed to refocus his efforts on rebuilding the studio’s core animation business and diversifying operations by aggressively expanding TV operations. DreamWorks has a programming deal with Netflix and could benefit from NBCUniversal’s TV properties.

DreamWorks shares closed Tuesday at $27.12, down three cents, before news of the potential acquisition came out.

In its most recent quarterly report, DreamWorks reported that it earned $42.1 million, or 48 cents a share, in the three months that ended Dec. 31, compared with a loss of $54.8 million, or 64 cents, in the same period a year earlier.

Revenue rose to $319 million, up 36% from the fourth quarter in 2014 and the studio’s best revenue in nearly a decade. DreamWorks Animation easily beat Wall Street expectations, which called for earnings of just 16 cents a share on revenue of $274 million.

The studio’s impressive performance came amid what Katzenberg called a “transitional year.” The company overhauled its film operations after a string of box-office failures and cut its film output to only two films a year beginning in 2016, down from three. DreamWorks also closed its Redwood City, Calif., animation studio and slashed 500 jobs.

“Kung Fu Panda 3,” its most recent film, was considered a success at the box office, grossing $504 million worldwide. About 70% of the total was generated outside the U.S.-Canada market for the China co-production.

Times staff writers Meg James, Richard Verrier and Rebecca Keegan contributed to this story.

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

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