Disney Pixar Acquisition

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REV: JANUARY 11, 2010

JUAN ALCACER
DAVID COLLIS
MARY FUREY

The Walt Disney Company and Pixar Inc.: To
Acquire or Not to Acquire? An Update
On January 24, 2006, Walt Disney Studios announced that it would acquire Pixar in a stock deal worth $7.4 billion.1 Robert Iger, Disney’s CEO, said, “I want to return Disney to greatness in this area and this was the way to do it fastest.”2 The deal was valued at $59.78 per Pixar share – a 3.8% premium over Pixar’s $57.75 close price (given Disney’s issuance of 2.3 shares for each share of Pixar, Disney’s close price of $25.99, and Pixar’s $1 billion in cash).3 Pixar’s shareholders approved the acquisition in May 2006.4 Many in the investment community believed that while the deal would be dilutive for the first two years, strategically, it made sense.5 Steve Jobs, with a 7% stake, became Disney’s largest shareholder.6 Edwin Catmull, Pixar’s president, was selected to preside over both Pixar and Disney animation facilities. John Lasseter, former executive vice president at Pixar, was named chief creative officer of the joint studios and principal creative adviser of Walt Disney Imagineering, reporting directly to Bob Iger7 (See Exhibit 1).

Iger said, “I’m sensitive to what can happen when a company is bought” and emphasized that “the Pixar culture be protected and allowed to continue.”8 He agreed to an explicit list of guidelines for protecting Pixar’s creative culture. Pixar became a subsidiary of Disney and would continue to operate under its own name out of its animation facility in Emeryville. Pixar employees were not required to sign employment contracts and could even keep their Pixar health plan, which was reportedly more generous than Disney’s (See Exhibit 1). Pixar did some bending of its own, which included softening to the idea of sequels and direct-to-DVD animated films.9 As part of the arrangement, Pixar took ownership of making its own sequels. Iger said, “While Disney can make them, Pixar making them is totally different.”10

At the time of the acquisition, Disney’s animation studio was down but not out. Lasseter remarked, “I was a little nervous when we went down to Burbank for the first time because I wasn’t sure exactly what we’d find. We found some things that needed to be changed, but I was relieved to find many young animators totally excited and into the idea of working at Disney.”11 Catmull and Lasseter imported many of the elements that fueled Pixar’s creative culture. They overturned the “top-down development” process in place at Disney and infused Pixar’s spirit of collaboration. To that end, they set up ‘The Story Trust,’ modeled after the famed ‘Brain Trust,’ and also opened up areas within Disney’s Burbank facility to increase the likelihood of chance encounters among the expanded team.12

________________________________________________________________________________________________________________ Professors Juan Alcacer and David Collis and Research Associate Mary Furey prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2009, 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire? An Update

But integration wasn’t all smooth-sailing, as exemplified by the story of “Bolt.” Already under production at Disney as “American Dog,” Lasseter, unhappy with the film, fired the director and had the team rework the...
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