LOS ANGELES (Reuters) - The principals behind DreamWorks SKG on Friday signed a long-expected deal with Reliance ADA Group of India to start a new $1.2 billion film company, allowing the studio co-founded by director Steven Spielberg to part ways with Paramount Pictures.
The Hollywood-Bollywood linkup of DreamWorks and the Mumbai-based entertainment, financial and telecommunications giant caps two years of speculation and feuding between Spielberg and his DreamWorks co-founder David Geffen with executives from Paramount and its corporate parent, Viacom Inc.
DreamWorks had no immediate comment on formation of the new film company, which two sources close to the deal valued at $1.2 billion.
The transaction was confirmed in a statement by Paramount, saying it had waived "certain provisions" from its original deal with DreamWorks "to clear the way for the DreamWorks principals and their employees to join their new company without delay."
Under the deal, as reported by The Wall Street Journal, Reliance will invest about $500 million in equity, while J.P. Morgan Chase & Co will provide $700 million in debt toward the new venture.
The basics of the pact first came to light in June, but the fine points of the agreement have been under negotiation until this week, sources told Reuters.
With the deal completed, it is expected the DreamWorks principals will turn their attention to finding a partner to distribute roughly six DreamWorks films a year.
Spielberg has long ties to General Electric Co's Universal Pictures, which is widely regarded as a leading choice to release future DreamWorks movies. But no deal with Universal is known to have been reached.
Reliance is an Indian conglomerate with operations in telecommunications, financial services and energy, though it has more recently branched out into show business.
The deal between DreamWorks and Reliance comes as financing in Hollywood has become increasingly tight due to the credit crisis on Wall Street.
In turning to Reliance, DreamWorks wins access to a stable source of financing, while Reliance stands poised to use the partnership to expand its reach into the U.S. movie market.
Reliance, which is controlled by billionaire Anil Ambani, in May signed deals with eight Hollywood production houses run by A-list actors, including George Clooney and Brad Pitt.
Relations between the DreamWorks principals and Paramount have been strained since DreamWorks was acquired by the Viacom-owned studio in 2006. Last year, Viacom Chief Executive Philippe Dauman caused a stir when he told investors that if Spielberg left it would be "immaterial" to the company.
Despite their uneasy partnership, DreamWorks has continued to churn out successful movies for Paramount, including last year's hits "Transformers," "Disturbia" and "Blades of Glory."
DreamWorks Animation, a separate publicly held studio run by another DreamWorks co-founder, Jeffrey Katzenberg, has its own distribution deal with Paramount through 2012.
Viacom shares closed 3.6 percent higher on Friday at $26.79, in line with a broad market rally on Wall Street as federal officials pledged a rescue of the troubled financial sector.