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DreamWorks' initial offering raises US$812m

Riding the success of back-to-back animated hits, the entertainment company DreamWorks priced shares for its animation unit above the anticipated level, raising US$812 million in an initial public offering on Wednesday.

Heavy demand from investors pushed the sale of 29 million shares to US$28 a share, from an initial estimate of US$23 to US$25. The sale is the biggest initial public offering to emerge from Hollywood since MGM went public seven years ago and raised US$180 million.

Shares in DreamWorks Animation were scheduled to begin trading yesterday under the symbol DWA on the New York Stock Exchange.

DreamWorks was founded in 1994 by the Hollywood power brokers Steven Spielberg, Jeffrey Katzenberg and David Geffen, with the original idea of creating an entertainment powerhouse for the 21st century through movies, music, television and interactive media.

Animation unit

Over time, the movie studio has become the central focus of the company, as the other areas showed little promise. The animation division has been producing the most revenue within the movie studio.

DreamWorks has had huge hits this year in Shrek 2, which has taken in US$436.2 million at the box office, and the recently released Shark Tale, which has taken in US$138 million so far.

The public offering was a way to repay DreamWorks's original investors -- most significantly Microsoft co-founder Paul Allen, who sold 2.3 million shares in the offering. Allen and other investors put up US$1.1 billion to fund DreamWorks. He has an additional 34.5 million shares, which he has the option to liquidate in six months.

Katzenberg and Geffen will control the company through their Class B shares, and Katzenberg will be the chief executive.

Analysts and investors said that there was huge investor interest in the shares, not just because of Shrek 2 and Shark Tale but because of the huge success of competitor Pixar, the leading computer graphics animation company.

Another pixar?

"I think there's a lot of enthusiasm in the market for this particular company. They're in a very lucrative and sweet spot of the film production business," said Anthony DiClemente, an entertainment analyst with Lehman Brothers.

Brad Ruderman of Ruderman Capital in Beverly Hills, California, said: "One thing is certain: That Pixar has proven its doubters wrong." He added, "People said there was no consistency to their business, but those who bet against it have failed miserably. This is riding the coattails of that."

But Ruderman cautioned that DreamWorks did not have much of a track record to justify an elevated stock price.

"Just because Shrek and Shark Tale were huge hits, what does that mean two or three or five years out?" he asked. "I don't have the foggiest idea."

In a regulatory filing on Wednesday, the company said it planned to release an average of two animated films a year, and would focus on making computer graphic animated films.

Of the nine feature animated films DreamWorks has made since its founding, the four computer graphics films have been hits, and most of the hand-drawn animated films have been box office losers, with the costliest flops being Sinbad: Legend of the Seven Seas, and The Road to El Dorado.
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