Is a DreamWorks Deal Perfect for Comcast?

If you can't beat em, join em. If you can't join em, buy a company that might make you competitive with them…Okay, so that doesn't have quite the same ring to it but that's what may be going on behind the scenes of the recently announced potential Comcast DreamWorks deal.  

Comcast is in talks to buy DreamWorks Animation for more than $3 billion. Proponents of the deal say the addition of DreamWorks will be a big boost for Comcast's Universal Pictures. Comcast has been trying to build a family entertainment brand to rival Disney. They've recently scored a victory with their Despicable Me franchise and will no doubt benefit from the addition of Shrek, Kung Fu Panda and Madagascar. Although, how many more Shrek movies can you make? 

DreamWorks did struggle from 2012-2014 as several box-office flops forced the company to scale back its releases to two movies a year from three and lay off 500 employees in early 2015. One bright spot though is its acquisition of AwesomenessTV which it owns with Verizon Communications and Hearst. AwesomenessTV has a terrible mid-90s Nickelodeon name that sounds like the Kazoo kid made it up but is a digital video company that's generated over 17 billion lifetime videos views and counts over 150 million subscribers. 

I bet Jeff Katzenberg is happy. The Chief Executive of DreamWorks gets $21.9 million off the bat if the company is sold and he leaves. But let's be serious here, for a guy like Katzenberg, that's a drop in the bucket. And, he's managed to trick Comcast into paying $3 billion for a company valued at $2.3 billion in a market that's a few percentage points off all-time highs. Good to hear the accountants at Comcast are as bad their customer service.  

The speculation surrounding a deal here follows at least three other rumors of interested parties including 20^th Century Fox, Hasbro and Softbank. The Comcast deal, on paper, seems to make the most sense. It's filled with one of my favorite corporate buzzwords, synergies. 

DreamWorks was up as much as 19% on the rumor today. Heading into the rumor, DreamWorks was already a Zacks Rank #2 (Buy). A big reason for the rank was the jump in earnings estimates for the current quarter and current year. Ninety days ago analysts were looking for DWA to breakeven on the quarter. Now they're looking for a six cent quarter when DreamWorks reports after the market close on May 5^th.