Disney's Acquisition of Pixar

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Case Details:

Case Code : BSTR203
Case Length : 13 Pages
Pages Period : 1995-2005
Organization : Walt Disney Company, Pixar
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Industry : Media, Entertainment, and Gaming

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"We are big believers that Disney buying Pixar would be a smart strategic move that could have very positive intermediate-term financial returns for Disney."¹

- William B. Drewry, Research Analyst, Credit Suisse First Boston² in 2006.

"Animation has always been the heart and soul of the Walt Disney Company and it is wonderful to Bob Iger and the company embrace that heritage by bringing the outstanding animation talent of the Pixar team back into the fold."³

- Roy Disney Jr. in 2006.

Introduction

On January 24, 2006, the US based media and entertainment company - Walt Disney Company (Disney) announced that it would acquire its animation partner, Pixar for US$ 7.4 billion in stock. Disney had been in partnership for producing and distributing animation films with Pixar since 1991. In January 2004, owing to differences with Disney's then CEO Michael Eisner (Eisner), Pixar had announced that it would partner with another distribution company in 2006.

But Robert Iger (Iger), who took over from Eisner on September 30, 2005, revived talks with Pixar and finally succeeded in acquiring it. The deal expected to be finalized by May 2006 would make Steve Jobs (Jobs), CEO of Apple Computer Inc.⁴ (Apple), the major shareholder in Disney with an equity stake of approximately 7%. This was because Jobs had a 50.6% equity stake in Pixar. He would also become a member of Disney's Board of Directors. Even after the merger, Disney and Pixar were to work from their separate headquarters at Burbank, and Emeryville (both in California), respectively.

Disney's press release said, "This acquisition combines Pixar's preeminent creative and technological resources with Disney's unparalleled portfolio of world-class family entertainment, characters, theme parks and other franchises, resulting in vast potential for new landmark creative output and technological innovation that can fuel future growth across Disney's businesses."⁵ Analysts said that the deal was more important to Disney than to Pixar.

While all of Pixar's films like Toy Story, The Incredibles and Finding Nemo were successful, Disney's animation films like Treasure Planet, Home on the Range and Brother Bear had performed below expectations. Some analysts felt that the deal was priced a bit higher than expected. In the US$ 7.4 billion deal, Disney got a library of six Pixar films. This seemed expensive for Disney, especially when compared to Viacom's acquisition of DreamWorks SKG in December 2005, which had 59 films, for US$ 1.6 billion. However, according to Nelson Gayton, Professor at Wharton, "Any premium that Disney might have paid for the Pixar acquisition must also be evaluated in light of the nature of the animation content that Pixar produces and the distribution possibilities it offers via new technologies."⁶

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1] Maya Roney, "Disney-Pixar Deal Could Drive Positive Returns," Forbes, January 19, 2006.

2] Credit Suisse First Boston, a business unit of the Zurich-based Credit Suisse Group, is a leading global investment bank with businesses such as financial advisory services, investment research, securities underwriting, brokerage services and asset management.

3] David Libermann, "Disney will Buy Animator Pixar," USA Today, January 25, 2006.

4] Based in Cupertino, California, Apple is considered the pioneer of the personal computer revolution in the late 1970s. Started by Steve Jobs and Steve Wozniack in 1976, Apple started manufacturing computers and later developed the powerful Macintosh range of computers. In the recent years, Apple is more famous for its iPod, a hard-drive based music player. For the financial year ended September 2005, its sales were US$ 13.93 billion and profits were US$ 1.335 billion.

5] "Disney to Acquire Pixar," www.corporate.disney.go.com, January 24, 2006.

6] "Why the Pixar Deal is Strategic for Disney," Knowledge@Wharton, February 08, 2006.