Paramount Pictures acquires DreamWorks SKG for $1.6B

? Paramount Pictures on Sunday agreed to buy independent film studio DreamWorks SKG Inc. for nearly $1 billion cash in a deal designed to help both companies reverse their troubled fortunes.

The sale marks the end of an 11-year dream for Hollywood moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen, who had ambitious goals for DreamWorks that once included television, music, films and the Internet.

Moreover, the DreamWorks acquisition is seen as a critical gambit for Paramount, which has been under orders from parent company Viacom Inc. to improve the quality of both its movies and earnings.

Paramount will pay $775 million in cash and assume $825 million in debt and other obligations, the company said.

“We see this at Paramount as a transforming event for the studio,” said Brad Grey, Paramount’s chairman and CEO.

The studio will finance the deal by immediately selling the DreamWorks film library, which Paramount values at between $850 million and $1 billion. The company said it is in advanced talks with several parties and expects to have a deal within weeks.

Cameron Diaz, left, Mike Myers, center, and Antonio Banderas pose while a man in a Shrek costume stands behind, during a photo call for their animated film Shrek

Paramount will retain distribution rights to the 59 library titles, which includes such hits as Oscar-winners “American Beauty” and “Gladiator.”

The agreement does not include DreamWorks Animation SKG Inc., which was the most profitable part of the company. The animated unit went public last year. Paramount does gain the right to distribute the animated studio’s lucrative films for the next seven years, including the profitable “Shrek” franchise.

It will also have the right to make television shows using DreamWorks Animation characters.

Grey said the arrangement with DreamWorks Animation makes Paramount a larger player in family and children’s movies. Paramount already produces films with Viacom’s Nickelodeon and MTV cable channels.

Upon completion of the deal, expected to close early next year, Paramount would sign new employment agreements with Spielberg as a producer and director, and Geffen, who will become chairman of DreamWorks.

Paramount put its offer together just last week, after DreamWorks had been discussing terms with NBC Universal, a unit of General Electric Co., for nine months.

NBC Universal made an offer in September, then reduced it at the last minute. That angered Geffen, who said he was still talking to NBC Universal as late as Friday before finally accepting the Paramount offer.

“We tried very, very hard to conclude a deal with General Electric, which we were never able to do,” Geffen said.

Geffen said Paramount was able to produce completed contracts within a week, something GE never did.

A deal with NBC Universal was considered more likely because of Spielberg’s long ties to Universal, which gave him his first jobs directing TV shows and eventually feature films.

In fact, even after agreeing to be bought by Paramount, DreamWorks will continue to have its main offices on the Universal lot because of Spielberg’s desire to remain there, Geffen said.