Tags: SoftBank | Dreamworks | Hollywood | merger

Analysts Mostly Warm to Possible SoftBank-DreamWorks Tie-Up

Monday, 29 Sep 2014 11:52 AM

SoftBank shares in Tokyo finished down 1.2% at 7,807 Japanese yen in trading on Monday, the first trading session since it emerged that the Japanese software to phones giant is in talks to buy DreamWorks Animation.

While that was a decline on a day when the Nikkei 225 index rose 0.5%, the decline represents a drop of only $1.1 billion in SoftBank's market cap.

While that does not suggest that financiers see the deal as immediately earnings enhancing, Monday's mark-down was also considerably less than the $3.4 billion price tag for DWA, apparently being discussed behind very closed doors.

While a DWA source told Variety that the company last week held a board meeting to discuss the Japanese offer, SoftBank was keeping quiet. A corporate affairs spokesman for Softbank described the takeover talk as "rumours" and told Variety that it was company policy not to discuss rumours.

Investment analysts could see logic in the deal and were generally warm to the possibility of a takeover by SoftBank.

"You only have to look at Softbank's failed attempt to take over Universal Music one or two years ago to see that a move into content is where Softbank wants to go," said Vivek Couto, executive director at consultancy group Media Partners Asia. "[Masayoshi Son] has never run a content business like this before. He will have to learn, he will have to incentivize key management. But he has always been a disruptive force. And he is capable of that. It is not like some utility coming in and trying to run a content business."

"Although DreamWorks has struggled recently with write-downs taken on three of the past five films, we believe Softbank could be attracted to the opportunity to acquire a solid U.S. studio at a beaten-down valuation that still has a valuable content library and character franchise (that could be monetized more effectively in China by a local company)," wrote Eric Wold of investment bank B. Riley. He also pointed to the undervalued Internet TV venture Awesomeness.

In a research note titled "A Combination Which Strategically Makes Sense" analysts Benjamin E. Mogli and Kevin Lee Hon Siong at Stifel said that valuation of DWA is tricky given the volatility of its film slate. But "we suspect that SoftBank's thoughts are less about near-term earnings power and more tied to the replacement value of the existing franchises and the already paid-for slate in development nearing distribution."

Wold suggested that other Hollywood mini-studios are also ripe for takeover by outsiders.
"As was the case with the cable industry, we believe that we could see increased activity within the media/content segment, especially as well-capitalized Chinese companies look to leverage heightened domestic demand with a large global opportunity. We believe Lionsgate Entertainment, IMAX Corporation and RealD could also be attractive in this environment."

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SoftBank shares in Tokyo finished down 1.2% at 7,807 Japanese yen in trading on Monday, the first trading session since it emerged that the Japanese software to phones giant is in talks to buy DreamWorks Animation.
SoftBank, Dreamworks, Hollywood, merger
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2014-52-29
Monday, 29 Sep 2014 11:52 AM
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