UPDATE 2-DreamWorks in talks with India's Reliance ADA

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By Sue Zeidler

LOS ANGELES, June 18 (Reuters) - The first act of a big Hollywood drama is nearing an end as Steven Spielberg's DreamWorks SKG closes in on up to $600 million in financing from an Indian conglomerate to further its scheme to exit Paramount, a person close to the talks said on Wednesday.

The $500 million to $600 million deal with Reliance ADA, one of the biggest names in Indian business, is the initial step in Spielberg's and DreamWorks co-founder David Geffen's plan to leave Paramount and set up their own studio to make films to be distributed by a soon-to-be-determined studio.

Reliance ADA would retain a large stake in the new company in exchange for its funding, according to the person familiar with the matter who said DreamWorks was talking with other studios about distributing its films once it arranges further financing to enable it to make about six films a year.

The person close to the talks said the entire package, including the distribution partnership, should be wrapped up in the next six to eight weeks.

While Paramount was not totally out of the question as a potential distributor, this was not probable, the person said, adding that General Electric Co's (GE.N: Quote, Profile, Research) Universal Pictures, where Spielberg started his career, and News Corp's (NWSa.N: Quote, Profile, Research) Twentieth Century Fox were among the top choices.

Speculation has swirled for months regarding the next probable move for Spielberg and Geffen as their long-troubled relationship with DreamWorks parent Paramount, a unit of Viacom Inc (VIAb.N: Quote, Profile, Research), flared up publicly last fall.

"This is not a surprise ending even though it's not done yet," said Christopher Marangi, associate portfolio manager at Gabelli & Co, who said the breakup, while not ideal for Viacom, would have minimal impact to its bottom line as both Paramount and DreamWorks are small contributors to its overall business.