DreamWorks CEO Sued on Merger ‘Side Deal’

     (CN) – An investor claims in court that Comcast offered DreamWorks CEO Jeffrey Katzenberg a lucrative side deal to secure his vote in its merger with DreamWorks Animation.
     Ann Arbor City Employees Retirement Systems, or AACERS, says in its class-action complaint that Comcast agreed to pay $41 per share for the animation company only if Katzenberg approved the deal by written consent.
     Katzenberg is DreamWorks’ controlling shareholder, holding 60 percent of voting stock, so no public shareholder approval was needed for the merger.
     To obtain Katzenberg’s consent, AACERS alleges that Comcast offered the DreamWorks CEO a two-year consulting agreement and profit-sharing arrangement that pays him annual consulting fees of $1 and 7 percent of the profits in perpetuity in AwesomenessTV Holdings LLC and DWA Nova LLC, two of DreamWorks’ most promising and valuable assets.
     The profit-sharing arrangement and consulting agreement, referred to in the lawsuit as the “side deal,” is incredibly valuable to Katzenberg and “constitutes disguised disparate merger consideration for Katzenberg,” according to AACERS.
     AwesomenessTV Holdings and DWA Nova are so profitable that the side deal is “akin to an equity rollover into two of DreamWorks’ most promising units without any of the downside risk typically associated with equity rollovers because Katzenberg also received $41 per share cash for all of his DreamWorks shares,” the complaint states.
     Since DreamWorks’ 2013 acquisition of AwesomenessTV Holdings, a teen-centered entertainment company, for an initial price of $33 million, its value has skyrocketed and is now valued at $650 million, says AACERS.
     And “DWA Nova, a unit that uses 3-D animation technology to assist companies with product development and marketing campaigns, appears similarly poised for success,” according to the complaint. Nike and Burberry have both reportedly partnered with DWA Nova to use the company’s 3-D technology to create and market products.
     AACERS says that Katzenberg’s profits from the two-year consulting arrangement could be potentially “worth tens and possibly hundreds of millions of dollars.”
     According to AACERS, the “side deal violates the equivalent consideration provision in DreamWorks’ certificate of incorporation,” which says that “in the event of a merger . . . each share of common stock shall be entitled to receive equivalent consideration on a per share basis.”
     “Had Katzenberg not received the extraordinarily valuable side deal, Comcast would have been required to increase the merger price to secure Katzenberg’s support, and the class would have shared pro rata in that increased consideration,” the complaint states.
     And that consideration would be “in excess of the $41 per share that [the class] will receive in connection with the Merger,” adds AACERS.
     In the merger negotiations, Comcast said it would only increase its initial $35 per share offer “contingent on Katzenberg approving the deal by written consent instead of submitting the proposed merger to a vote by DreamWorks’ public stockholders,” the lawsuit states.
     That “created an immediate conflict of interest that should have precluded Katzenberg’s involvement in any discussions with Comcast until the DreamWorks board had agreed to accept a final price,” AACERS claims.
     “By negotiating the terms of his post-closing relationship with Comcast before executing a written consent authorizing a board-approved merger, Katzenberg used his leverage to extract disparate consideration in violation of the charter, and constrained the board’s ability to secure ‘equivalent consideration’ for the company’s public stockholders,” the Delaware Chancery Court complaint states.
     AACERS is represented by Michael J. Barry of Grant & Eisenhoffer of Wilmington, Del., and Jeremy Friedman of Friedman Oster in New York City.

%d bloggers like this: