This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why DreamWorks Might Want a Takeover Offer (But Likely Won’t Get One)

Stocks in this article: DWA CMCSA TWX FOXA DIS NFLX

Updated from 6/30 to include updated DreamWorks comments in 6th paragraph.

NEW YORK (TheStreet) -- As media conglomerates pair up (or at least attempt to), DreamWorks Animation  (DWA) is one of the few independents to be left on its lonesome to tackle waning interest in blockbuster films, animated or otherwise.

On the surface, DreamWorks appears to be an attractive takeover target. Its annual revenue hover around $707 million and it has a string of successful franchises including Shrek and The Croods that are likely to continue racking up sales through consumer products, licensing and home entertainment.

But after two quarters of losses far wider than expected, the family animation studio is now trading at its cheapest level ever. In its most recent second quarter, DreamWorks reported a net loss of 18 cents a share compared to losses of 2 cents a share expected by analysts, leading shares to crater more than 11% over Wednesday's session. Year to date, the stock has lost more than a third of its value, cratering 43.7% to $19.98 compared to the S&P 500's 6.6% gain.

Read More: DreamWorks Is The First Casualty of the Sumer Box Office Slump

Courting a deal would surely benefit DreamWorks. "As an independent studio, there could be more synergies as part of a larger media company, both on the production and distribution side," argued S&P Capital IQ's Tuna Amobi, who retained a "buy" rating, in a phone interview.

But, DreamWorks' intrinsic value is countered by a lack of demand. Television properties and merchandising opportunities aside, the company's performance is still primarily tied to how its films fare at the box office.

DreamWorks' head of public relations, Allison Rawlings, declined to comment on whether the company would be open to M&A activity. 

Weakness at the box office has plagued DreamWorks over the past several quarters. A quarter earlier, the Glendale, Calif.-based studio reported a net loss of 51 cents a share, more than three times wider than the analyst consensus, due to a $57 million impairment charge on its March release of Mr. Peabody & Sherman.

Its summer 2013 film Turbo also saw disappointing results domestically, generating only $83 million in U.S. and Canadian markets. The company took a $13.5 million write-down in February for that movie, the accounting for which is currently under SEC investigation.

Read More: Target's Woes Won't End Even If It Dumps Canada Operations

If industry talk is to be believed, DreamWorks has flirted with the idea of a takeover before. "Although it was kept very quiet at the time, we're certain that CEO Jeffrey Katzenberg put the company up for sale two years ago and there were no buyers," Topeka Capital Markets' David Miller (who maintained a "hold" rating and $23 price target) told TheStreet.

Cowen & Company's Doug Creutz added he heard rumors as early as 2010, recalling, "They couldn't find any buyers back then and that was when their economics of their film business looked a lot better than they did now."

Therein lies the problem for DreamWorks. Though it has had several successful franchises in a relatively short history, albeit without the level of consistency Pixar has enjoyed, there isn't a market for movie studios at the moment. 

All the major media conglomerates already have an animation arm or have cash tied up elsewhere, Miller noted: Comcast (CMCSA) has Illumination Entertainment which has succeeded with its Despicable Me franchise, Warner Bros. (TWX) recently knocked it out of the park with The Lego Movie, 21st Century Fox (FOXA) owns Blue Sky Studios, producer of Rio and Ice Age, and Walt Disney Co. (DIS) animation is a force in animation which doesn't need fortifying.

Read More: Why Tesla Needs the Gigafactory More Than Strong Model S Sales

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs