Question: Which is greater: the value of Pixar and Disney in an exclusive relationship, or the sum of the value that each could create if they operated independently of one another or were allowed to form relationships with other companies? Why?
The case says follows: Many media analysts argued for an acquisition, reasoning that animation was integral to Disney’s corporate strategy because characters from animated films drove retail in its theme parks and consumer product divisions. And Pixar’s track record for producing smash hits was unmatched. However there are 3 problems seen in this case. First; the tremendous cost of acquisition, Second; cultural clash between Pixar and Disney, and Third; the risk of Pixar’s creative talent walking out.
First problem is the tremendous cost of acquisition. Investment bank analysts estimated that if Disney purchased pixar, it would have to pay an enterprise value fee of between $6.5 billion and $7.4 billion, given Pixar’s %5.9 billion market capitalization. Deutsche Bank analysts called the potential deal “nonsensical” because it would be heavily dilutive with Disney trading at P/E of 17.
Second problem is cultural clash between Pixar and Disney. Pixar has its own corporate culture such as primacy of people, free environment of offering ideas and so on. However, if Disney which had been No.1 company in that area had their own wants and decision making process. So it has possibility to clash even though they operate separately in their business.
Third problem is a potential creative talent exodus. From the characteristics of the film industry, the most important part is its creative talent. If they get out of Pixar, Disney just bought like the most expensive computer that is not helping.
So, I want to recommend the other way, licensing. What Disney really wants is the profit from “Smash hit” characters. Disney should have strategic alliance with not only Pixar, but other companies so...