Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire?
The Walt Disney/Pixar case explores the benefits and perils of potential acquisition while looking at two of the most famous media companies in the world. The central decision of the case is whether Disney should acquire Pixar, a move that could be quite lucrative but also very expensive.
The case begins with a description of the current (as of 2005) relationship between Disney and Pixar. Pixar was, in essence, a software company that used mathematical models to create 3D computer-generated animated films. Pixar had partnered with Disney, which was financing the production of Pixar films in exchange for the rights to the movies. In the late 1990s and early 2000s, Pixar produced some of the most successful animated films in history, including Toy Story and Finding Nemo. The deal the two companies had inked was set to expire in 2007 after the release of Cars.
Operating under CEO Steve Jobs, Pixar was seeking to renegotiate the deal for the future, using Disney as merely a distribution partner and shouldering the financing burdens itself. This new structure would be more lucrative for Pixar but would cut Disney out of the large profits that Pixar films generated. Disney understandably wanted to maintain or expand the partnership, not shrink it, in order to bring in more Pixar film profits.
In addition to Disney’s desire for higher profits, the company had faced a long string of increasingly unsuccessful movies. After the release of the Lion King in 1994, most of Disney’s animated film releases had been box office disappointments. Pixar’s films had become an important growth driver for Disney’s animated film business.
The acquisition was not without its risks. While Pixar did have a long string of successful films under its belt, it was facing competition. DreamWorks, with its Shrek franchise (among others), was giving Pixar a run. Pixar was also expensive; in 2005, it was trading with a Price/Earnings ratio of 46, compared to DreamWorks’ 30 and Disney’s 17. Further, Pixar had a unique corporate culture that was in many ways incompatible with Disney’s. If the two companies were to merge, Disney would have to be careful when integrating Pixar into the business without stymying Pixar’s creative energy, lest they inadvertently drive the talented Pixar employees to other studios.
In the update to the case, it is revealed that Disney did in fact acquire Pixar for $7.4 billion in stock. The deal made Steve Jobs the largest single Disney shareholder and resulted in many future successful Pixar films. Disney and Pixar have maintained separate animation studios and have released films as distinct studios but have collaborated on stories and distribution.
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