Disney Pixar Merger Case Study

Executive Summary

In a world of big-money, yet failed mergers, the Disney Pixar merger stands out as one that has succeeded and created the elusive ‘synergies’ that every acquirer looks for. The deal was unique in that the two companies had very complementary competencies and had been in a strategic partnership for 15 years prior to the merger. An all-stock $7.4 billion transaction, the SER was 2.3 shares of Disney for every Pixar share, since Pixar was overvalued with respect to Disney. We valued Pixar as a standalone entity, and discovered that, going by only cash flows, Disney could be said to have overpaid for Pixar. However, in the film industry, where creative talent is one of a studio’s biggest assets, this deal showed the benefits of

Rather, he believed in a patient approach. Both Disney and Pixar retained their current location and operations. There was transparent communication across both the originations and as Disney had promised, Pixar’s employee related policies remained unchanged. The employees weren’t forced to sign any employment contract. Indeed, they even retained their email ids. Pixar’s primary directors joined Disney’s board thus paving the way for transformational leadership, giving employees a chance to grow and providing them a sense of direction. In fact, Pixar was given a free hand to such an extent that John Lasseter from Pixar after becoming the creative chief at Disney replaced Sanders, the original director of the movie “Bolt”; who had resisted the changes he proposed5. Pixar in turn was willing to adapt by allowing alternative production channels like Direct-to-DVD and outsourcing part of the production to Indian animators, which was not considered beforehand because of quality

Appendix 3: Volatility of earnings in the animated movie industry

Volatility of earnings

A problem that companies in the animation industry such as Dreamworks and Pixar acknowledged with forecasting their earnings is that their revenues and operating expenses were very volatile. This is because of several reasons:

• It is difficult to predict worldwide box office success since it depends on macroeconomic factors as well as the other films being released simultaneously, about which a production studio has no accurate information before the fact

• It is difficult to also predict the customer acceptance and ensuing success of follow-on products such as home video, television licensing, merchandising and ancillary revenue streams since they depend on factors unique to the type of product, such as pricing, competitive products, the time of year and the state of the economy into which a product is released

• The exact degree of correlation of box office with follow-on product success is difficult to predict

• Customer acceptance may vary widely between