LOS ANGELES -- Paramount Pictures has agreed to buy independent film studio DreamWorks SKG Inc. in a deal worth $1.6 billion in cash and debt, it said yesterday.
The deal would strengthen Paramount's live action film business and give the Viacom Inc. unit access to DreamWorks' library of 59 films, including Oscar winners ''American Beauty" and ''Gladiator."
It would also mark the end of an 11-year dream for Hollywood moguls Steven Spielberg, Jeffrey Katzenberg, and David Geffen, who had ambitious goals for DreamWorks that included television, music, films, and the Internet.
Brad Grey, Paramount's chairman and CEO, said enhancing Paramount's pipeline of pictures is a ''key strategic objective in restoring Paramount's stature as a leader in filmed entertainment."
The announcement did not break down the amounts of cash and debt involved in the deal.
The agreement does not include DreamWorks Animation SKG Inc., the most profitable part of the company. The animated unit went public last year. But Paramount does gain the right to distribute the studio's lucrative animated films, including the ''Shrek" franchise.
Paramount also said it was in advanced negotiations with a third party to sell DreamWorks' film library but would retain the right to distribute the titles.
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. Spielberg and Geffen will be responsible for producing four to six live action films a year.
Paramount said it will also make an exclusive seven-year distribution deal with DreamWorks Animation and have the rights to produce TV shows using DreamWorks Animation characters.
The agreement caps months of talks involving the acquisition of DreamWorks. NBC Universal was interested last summer, but those exclusive talks ended in September.
NBC Universal reentered the bidding in October.
Paramount was initially interested in bidding but could not get permission from its parent, Viacom, which was in the process of splitting into two publicly traded companies. The studio jumped back into talks unexpectedly this week after Viacom's board approved a bid. Viacom agreed to an offer only if it could split the risk with outside investors.
DreamWorks, created in 1994, was forced to scale back its ventures over the years. It abandoned plans to build a high-tech studio lot in Los Angeles in 1999, sold DreamWorks Records to Universal Music Group in 2004, and has curtailed its TV production. Its Internet site, Pop.com, also folded.
DreamWorks has had some hits over the years and more than its share of misses, including ''The Island," which tanked at the box office this summer.
The studio has found it harder to survive as an independent company. Last year, it spun off its animation division in part to repay its initial investors, including billionaire Paul Allen.