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Disney Pixar
Disney Pixar
Subject: Merger of Pixar Animation Studios with the Walt Disney Company Merger Period: In Jan 2006 Walt Disney agreed to buy PIXAR for $7.4 Billion I. Overview (Oanh) In January 2006, the US based media and entertainment company Walt Disney announced that it would acquire its animation partner Pixar for US$ 7.4 billion in stock. The case primarily examines the partnership agreement between Disney and Pixar and puts forth the incidents that led Pixar to look out for other partners. The case highlights the advantages and pitfalls of the deal for Disney and Pixar. Now we will find out the true story behind that. Firstly, lets start with the history of two parties. Pixar Pixar begins in 1979 as the Graphics Group, which is a part of the computer division of Lucasfilm. In 1986 Steve Jobs bought the company from George Lucas for $5million and ads another $5million of capital. The newly formed company was headed by Jobs, who served as Chairman and Chief Executive Officer of Pixar. In 1990, Pixar went through a rough time selling its hardware technology and imaging software to Vicom Systems. However, the following year it managed to secure a $26 million deal with Disney to produce three computer-animated feature films, the first of which is Toy Story. The alliance had begun. In 1995, Toy Story was released and became the highest grossing movie of the year, making $192 million in U.S box office and $362 million worldwide. At the same time Pixar went public, offering 6,900,000 shares at $22, beating Netscape as the biggest IPO of the year. Disney The Walt Disney Company was founded on October 16th 1923 by brothers Walt and Roy Disney. Walt Disney is one of the major companies in the world that has provided entertainment to generations of fans since 1923. The company together with its subsidiaries consists of four main segments: media networks, parks and resorts, studio entertainment and consumer products. In 1927, Walt decided to pursue all-cartoon series and the mouse is born. Mickey Mouse became an overnight sensation and a series of cartoons followed. Walt Disney created Disneyland in 1955. The park was a huge risk for the company, as it had taken millions of dollars in bank loans to build it. But it paid off. It became an enormous success and finally put the company in solid financial footing.
As any other major merger, the deal had to be approved by regulation, for anti-trust considerations. All the regulatory approvals were received before the final vote of the shareholders.
Disney Pixar Focus on its core strengths in producing the computer animation, without investing in production line for making merchandise and home entertainment. Disney has the various lines to produce merchandises and have a place to distribute so Pixar also gain the benefit of being able to produce the other lines of products such as apparels, toys, and so on. Increasing capital To acquire core strengths of Pixar in producing computer motion pictures. At the time Disney started developing its computer animation films, Pixar already generated more than 30 billion dollars from its 6 animation motion pictures. Decrease in competition mainly because Pixar is the large player in the industry in terms of developing and producing computer animation films, which in collaboration with Disney can greatly increase its market power. Increase in revenue by merging with Pixar. Merging with Pixar will help Disney to generate new sources of revenues from high-quality new type of films and to get more profit from merchandise and theme park tickets. Access to computer generated imaging technology.
Moreover, after the deal, stockholders got an increase share price from merging the two companies. For example, shares of Pixar gain nearly 3% from after-hours trading and Disneys stock gained about 1.8% in regular trading. With regards to synergies, the team up of these two big animation production companies will enable better human resource. They can exchange the valuable human resource between Disney and Pixar, which enables them to better, produced even top hit motion pictures. Both parties can market its production together and get more profit. Considering the structure of this deal, both companies can concentrate on their individual strengths, which will turn in an increase of productivity and generate more sales. Post Merger Overall it was a very successful integration. The financial results (and here we only look at the Box office success, not taking into account the retail revenues Disney achieved through its wide distribution and sales network in its Parks, etc) clearly prove this success. Since the merger, Disney-Pixar generated $4.1 billion in Box office revenues in only 5 years, compared to $3.2 billion in the previous 9 years. There were two major issues that the public and Wall Street feared after the acquisition of Pixar through Disney. One was that Disney with its sheer size - would trample Pixars creative power and turn the Pixar executives into mere Disney-puppets. The other scenario depicted a spoiled team of Pixar executives and animators, completely unwilling to make this partnership a success and not respecting the requests of its new owners.
But luckily, both apprehensions didnt materialize. On the contrary, the merger is noteworthy for the success it had and how apparently easy the integration was so far. Despite many mergers that destroyed more value than they were anticipated to create (especially in the media sector), Disney and Pixar made it work. Wall street showed its content with this deal with an average stock price of $25 before the deal, about $35 after one year and still a stable $30 after almost two years.
Title Monster University Brave Cars 2 Toy Story 3 Up Wall E Ratatouille Cars The Incredibles Finding Nemo Monsters, Inc Toy Story 2 A Bugs Life Toy Story
Year 2013 2012 2011 2010 2009 2008 2007 2006 2004 2003 2001 1999 1998 1995
Box office $552M $1,063M $731M $521M $624M $631M $631M $868M $526M $485M $363M $362M
The main reasons for this great result are as follows: * The investors see potential for Disney to leverage Pixars computer-animated character to be used across its vast network (parks, channels, etc). One successful example for this opportunity is Cars. While it was not one of the biggest blockbusters for Pixar/Disney (only $460million in the cinemas and $27million in DVD sales), the revenues in retail products reached about $5billion for Disney for Cars only (through an online world, an ice-skating show and a Cars world in Disney World, etc).
Pixars willingness to change and adapt to being part of an international conglomerate. Not only did Pixar decide to not mainly push for new movies anymore, but also allow for sequels (Toy Story, Cars). The executives also changed their mind on another production channel: Direct-to-DVD was now also a part of Disney-Pixars portfolio. Pixar even allowed the partial production of these movies to be performed by outside animators from India, which was categorically impossible, before Pixars executives feared a loss in quality and damage to the brand. The experience of Bob Iger (having been bought with his companies twice himself) how a merger should be done was also a key influencing factor for its success.
What was the final outcome of the merger? Was it a win-win or a win-lose situation ? Win-Win deal - The strength of pixar animation was supported by the money of Disney and made it a force to reckon with and successful. For Disney it was a adding muscle to its existing animation strength with a stronger partner.
"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." - William B. Drewry, Research Analyst, Credit Suisse First Boston 2 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." Roy Disney Jr. in 2006. The two companies strictly followed the well-known tactics to make a merger work, like effective communication to the employees but also came up with some more unusual approaches. For example, the executives agree on a detailed list of things that Pixar would not have to change after the merger (e.g. the health benefits) and concrete guidelines on how to protect Pixars creative culture. There is a steering committee that oversees animation for both Disney and Pixar studios, with the mission to maintain and spread the Pixar culture. Also Pixar employees were not forced to sign an employment contract, whereas this policy exists in Disney. Regarding this list of promises, a Pixar executive was quoted in the NY Times 1: Weve never had to go back and look at it. Everything theyve said they would do they have lived up to. One of the key-learnings of Mr. Iger was that a successful merger cannot happen in a rush. There is an assumption in the corporate world that you need to integrate swiftly, Mr. Iger said. My philosophy is exactly the opposite. You need to be respectful and patient. This becomes visible in many details (such as keeping the same email-addresses for Pixar employees or no forced adaption of the strong corporate culture of Disney) but mainly the overall trust that was build over time and acknowledged by Mr. Lasseter when he said: It took about a year before there was a collective letting down the guard.
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www.nytimes.com/2008/06/01/business/media/01pixar.html?pagewanted=all
Analysts identified another key-factor for the success of this merger. Bob Iger gave the new talent acquired through Pixar extra responsibilities to help improve Disney and drive it into a new direction. One analyst, familiar with the deal, commented in the NY Times 2: If you are acquiring expertise, then dispatch your newly purchased experts into other parts of the company and let them stretch their muscles. Disney did exactly this by assigning the Pixar team to turn around Disneys animation department, which they achieved! The influence Pixar had at Disney becomes clear when John Lasseter says: Disney has become a filmmaker-led studio and not an executiveled studio. We are very proud of that. Another key factor to ensure Pixars influence at Disney was that the deal required that Pixar's primary directors and creative executives also had to join the combined company. The transformational leadership of the key-leaders (Steve Jobs and John Lasseter) in Pixar was brought into and widely adopted by Disney. Their ability to lead teams that bring a willingness to quickly adapt to new challenges in a rapidly changing environment is legend and (as seen above) also works in Disney. 3
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www.nytimes.com/2008/06/01/business/media/01pixar.html?pagewanted=all Haley and Sidky 2009: Making Disney Pixar Into A Learning Organization