Pixar, co-founded by Steve Jobs, left, and Disney, run by Robert A. Iger.
HISTORICAL BACKGROUNDThe Walt Disney Company was founded on October 16th 1923 by brothersWalt and Roy Disney.It is one of the largest media and entertainment corporations in the world.It’s the owner of 11 theme parks and several television networks, includingthe American Broadcasting Company (ABC).Disney started making films in the1930’s.Some of their first films were SnowWhite, Bambi and Pinocchio.A lot of their earlier films wereanimated adaptations of children’sfairytales.
HISTORICAL BACKGROUNDPixar Animation Studios was started byJohn Lasseter & George LucasPixar was initially a computer graphicsdivision owned by film maker GeorgeLucas known as Lucas film limited.In 1986, Steve Jobs purchased thecomputer graphics division of Lucas FilmLtd. for $10 million and established it asan independent company named Pixar, co-founded with Dr. Edwin E. Catmull. On November 22, 1995, Pixar Animation Studios forever impacted the future of filmmaking with the release of its first feature film, Toy Story. The film went on to become the highest grossing film of 1995 with $362 million.
THE RATIONALEDisney -• The acquisition gave Disney ownership of the world’s most famous computer animation studio and its talent.• The timing was also perfect for Disney, as its own animation films were failing.• The deal brought the technology company Apple closer to Disney.• The decrease in competition is another motive for Disney
Pixar -• For Pixar it was a good move to face competitors like DreamWorks & 20th century fox.• The deal gave Apple iTunes more video content to offer.• Pixar can focus on its core strengths of producing the computer animation and does not have to invest in production line for making merchandise and home entertainment.
THE MERGERPursuant to the terms of the merger agreement, Lux Acquisition Corp., awholly-owned subsidiary of Disney, will merge with and into Pixar, andPixar will survive and continue as a wholly-owned subsidiary of Disney.On January 24, 2006, Pixar Animation Studios and The Walt DisneyCompany entered into a merger agreement. The deal wasconsummated on May 5, 2006 for a purchase price of $7.4 billion.
1. Pixars major features have been made with Walt Disney Pictures.2. In 1997, after the release of Toy Story, a 10-year, 5-picture deal was signed, evenly splitting production costs and profits on subsequent movies. Disney alone retained rights to the films and characters. In addition, Disney collects 10 to 15 percent of each films revenue as a distribution fee.3. Pixar and Disney have had ongoing disagreements since the production of Toy Story 2 (1999). Originally intended as a straight-to-video release (and thus not part of Pixars five picture deal), the film was upgraded to a theatrical release during production. Pixar demanded that the film then be counted toward the five picture agreement, but Disney refused. There were talks of Pixar searching for new distributors.
4. On January 24, 2006, Disney announced that it had agreed to buy Pixar for approximately $7.4 billion.5. Disney was offering 2.3 shares of its stock for each Pixar share. Thats a 3.8% premium on Pixars closing price of $57.57 (2006).6. The transaction would catapult Steve Jobs, who was the majority shareholder of Pixar with 51%, to Disneys largest individual shareholder with 7% and a new seat on its board of directors.
THE METHODTo purchase Pixar, Disney exchanged 2.3 shares of its common stock foreach share of Pixar common stock, resulting in the issuance of 279million shares of Disney and converted previously issued vested andunvested Pixar equity based awards into approx. 45 million Disneyequity based awards.The acquisition purchase price was $7.4 billion in an all-stock deal.($6.4billion of stock and Pixar’s cash & investments of approx. $1.0 billion).The value of the stock issued was calculated based on the market value ofthe company’s common stock using the average stock price for the fiveday period beginning two days before the acquisition announcement dateon Jan 24th, 2006.The fair value of the vested equity based awards issued at the ClosingDate was estimated using the Black-Scholes option pricing model .
THE ANALYSTS OPINIONMr. Iger said: "The addition of Pixar significantly enhances Disneyanimation, which is a critical creative engine for driving growth across ourbusinesses."Doug Mitchelson at Deutsche Bank Securities called the move a "bold foray”."In a way, it appears that Iger has returned Disney to its roots with this deal asthe creative heart of the company will once again be a highly successfulanimation unit,”.Jessica Reif Cohen of Merrill Lynch calls the combination "a near perfectstrategic fit," adding that the Disneys brand "meshes well" with Pixarscontent.However, analysts said that the real value to Disney was the talent the dealwould bring in-house, especially Pixar executive vice-president JohnLasseter, the man credited as being the creative driving force at the firm.
1. In terms of the revenue, stockholders got the higher share price from merging between two parties. Shares of Pixar gained nearly 3% from after-hours trading and Disney’s stock gained about 1.8% in regular trading.2. In terms of human resource, the team up of two big animation production companies enabled in better human resource. They could exchange the valuable human resource between Disney and Pixar, which enabled them to produce top hit motion pictures.3. Over the past three years Disney, which ranked 67th on the Fortune 500 last year, cruised to the head of the media pack in terms of both its stock performance and its return on invested capital.4. Under Iger, Disney became the worlds largest media conglomerate by market value, worth around $40 billion.5. “Ratatouille,” “Wall-E” and “Up” have all garnered critical praise . Then there’s the “Toy Story” franchise. Part One – the first result of a distribution deal Disney and Pixar signed early in their courtship – showed the world what their partnership could do.
NEW YORK (CNNMoney.com) (2006)– The magic is back for shareholdersof Walt Disney. Disneys stock is up nearly 20 percent so far thisyear, making it the second-best performer in the Dow Jones IndustrialAverage.How has Disney done it? In a word: Pixar.The Pixar acquisition also won over many investors because of the Jobs andApple effect.