DreamWorks IPO Draws $812 Million

All of a sudden, the market for initial public offerings has gotten animated.

Glendale-based DreamWorks Animation SKG Inc. raised $812 million late Wednesday by selling 29 million shares at a higher-than-expected $28 apiece, seizing on the startling IPO successes of Google Inc. and Shopping.com Inc. as well as its own box-office winning streak.

DreamWorks, which produced the record-setting “Shrek 2” and the hit “Shark Tale,” had expected to sell the shares for $23 to $25 each.

“This is a hot company, but more than that, this has become a hot market for IPOs,” said Tom Taulli, columnist at CurrentOfferings.com.

The higher pricing indicated that demand for DreamWorks Animation’s shares far outstripped supply, which Taulli said was surprising given the large size of the offering.

Underwriters Goldman Sachs & Co. and J.P. Morgan Securities Inc. could not be reached for comment. The offering may wind up raising as much as $933.8 million if Sachs and Morgan exercise options to buy 4.35 million more shares at $28.

Strong demand for the IPO bodes well for DreamWorks Animation’s shares when they begin trading today on the New York Stock Exchange under the ticker symbol DWA. Investors who couldn’t get in on the initial offering may scramble to buy shares once they trade on the open market.

In the near term, DreamWorks Animation looks to put up numbers that will please investors. Next week, it is expected to reap big sales from the release of the “Shrek 2” DVD. The DVD of “Shark Tale” will hit stores early next year.

DreamWorks Animation plans to release two films next year: the computer-animated “Madagascar” and the stop-action movie “Wallace & Gromit”. The company also is planning “Shrek 3” for release in 2006.

Of the offering’s proceeds, DreamWorks has said it would use $175.5 million to fund its operations and $405 million to repay debt. The company’s aggressive film plans call for two computer-animated movies a year, a pace no studio has accomplished.

The offering separates the animation group from the rest of DreamWorks SKG, which was launched in 1994 by director Steven Spielberg, music executive David Geffen and former Walt Disney Co. studio chief Jeffrey Katzenberg.

Katzenberg will be chief executive of DreamWorks Animation and Geffen will sit on the board. The pair have 93% voting control of the company. Roger Enrico, former chairman and CEO of PepsiCo Inc., will be chairman; Spielberg will not hold a seat.

The offering gives investors such as early DreamWorks backer Paul Allen, co-founder of Microsoft Corp., a market to cash out some of their investment if they choose. Allen, who is believed to want a return on the more than $500 million he has already sunk into the company, sold 2.33 million shares in Tuesday’s offering, grossing $65 million. His remaining Class A shares are worth nearly $1 billion, based on the $28 offering price.

In the first six months of this year, when “Shrek 2” was released, DreamWorks Animation reported net income of $120.7 million on operating revenue of $341.1 million. That contrasts with a loss a year earlier of $114.7 million on operating revenue of $118.5 million.

The offering gives DreamWorks Animation a market value of $3 billion. By comparison, Pixar, which produced the computer-generated movies “Finding Nemo” and the “Toy Story” films, has a market value of $4.5 billion. Its stock has gained 15% this year, compared with the 1.2% rise of the Standard & Poor’s 500 index

“Shrek 2” is the year’s top-grossing film and the best-selling animated movie ever, with $437 million in U.S. and Canadian receipts so far, but analysts agree that for DreamWorks Animation to thrive long-term the company will need to keep churning out hits.

The last initial public offering for stock in a major movie studio was for shares of Metro-Goldwyn-Mayer Inc. in November 1997. MGM is in the process of being acquired by a group of investors led by Sony Corp.

DreamWorks Animation’s IPO appears to be very well-timed, analysts said. Investors were caught off guard by the bullish aftermarket trading in search engine Google and more recently in e-commerce site Shopping.com, Taulli said.

Mountain View, Calif.-based Google, which went public Aug. 4 through a maverick auction process that had been scorned by Wall Street insiders, closed Wednesday at $185.97 a share on Nasdaq, up 119% from its offering price.

“A lot of people made some real money on that one,” Taulli said. “Now other investors are asking their brokers, ‘How can I get some of that action?’ ”

Israel-based Shopping.com, which Tuesday posted the year’s biggest first-day IPO gain, added to its momentum Wednesday to close at $31.60 on Nasdaq. The stock was priced late Monday at $18.

Strong demand lifted two other deals as well Wednesday.

Mutual fund manager Calamos Asset Management Inc. in Naperville, Ill., sold 20 million shares at $18, above its proposed range of $15.50 to $17.50. The shares will trade today on Nasdaq under the symbol CLMS.

Foxhollow Technologies Inc. in Redwood City, Calif., which makes a catheter system for use in treating artery disease, was priced at $14 a share, the top of its proposed range. It starts trading today on Nasdaq under the symbol FOXH.

After a three-year slump, IPO activity has risen sharply this year, according to IPOHome.com, run by Renaissance Capital in Greenwich, Conn. This year, 164 companies have gone public, versus 68 all of last year, 70 in 2002 and 83 in 2001.

Still, this year is unlikely to reach the manic levels of 1999 and 2000, when 486 and 406 companies went public, respectively.

Taulli said the IPO calendar may get busier in the year’s last two months as companies in e-commerce and other sectors try to cash in on the bonanza.