Mr Jobs Goes To Disneyland

Disney Snags Pixar for $7.4B, from RedHerring.com

January 24, 2006

In a deal that bespeaks the growing interdependence of Hollywood and Silicon Valley, the Walt Disney Company said Tuesday it will acquire Steve Jobs’ Pixar Animation Studios for $7.4 billion in stock.

The deal will make Mr. Jobs the majority shareholder in Disney and give him a seat on the board. But it also raised questions about whether the strong-willed entrepreneur can change the entrenched thinking at one of the entertainment world’s largest conglomerates.

“It appears that Steve Jobs and Pixar’s public shareholders are going to be richly rewarded for Pixar’s six blockbuster films (and hopefully many more to come),” wrote Banc of America Securities analyst Michael L. Savner in a research note published just before the long-rumored deal was confirmed.

The Disney board approved the takeover offer on Monday, and the Pixar board was expected to bless the union on Tuesday. Disney will issue 2.3 shares for each Pixar share, a value of about $58.70 per share. After the deal was announced, Pixar shares climbed $1.53 to $59.10 in after-hours trading.

Collaboration Without Barriers

“Disney and Pixar can now collaborate without the barriers that come from two different companies with two different sets of shareholders,” said Mr. Jobs. “Now everyone can focus on what is most important: creating innovative stories, characters, and films that delight millions of people around the world.”

John Lasseter, a former Disney exec who directed Pixar’s Toy Story and its upcoming animated flick Cars, as well as spearheaded many of the company’s other hits, would become chief creative officer for animation at Disney. He would also help design theme park attractions as principal creative advisor of Walt Disney Imagineering.

Pixar President Ed Catmull would become president of the combined Disney and Pixar animation studios. Pixar will preserve its current operations and locations. The deal is expected to be completed this summer. The Disney board has also approved the buyback of up to 225 million shares.

“With this transaction, we welcome and embrace Pixar’s unique culture, which for two decades has fostered some of the most innovative and successful films in history,” said Disney CEO Robert Iger.

Shares of Pixar, which traded in the 40s during September, have spiked about $5.00 since rumors began circulating at the beginning of the month about a possible sale (see Steve Jobs in Disney Talks).

Disney has plenty of cash. Its balance sheet shows its cash on hand as of October 2005 totaled $1.72 billion. Pixar had $1.04 billion in cash as of October 1.

Pixar is also a maverick in the tech and animation industries with Mr. Jobs, who is also CEO of Apple Computer. As an Apple co-founder, Mr. Jobs has revolutionized computing with the Macintosh, iMac, and PowerBook. Meanwhile, Apple’s ubiquitous iPod digital music player has upended the music industry.

Redefining the Art

Pixar essentially redefined the genre of animated films that Disney pioneered under the guidance of founder Walt Disney. Pixar produced a string of hits, including Toy Story, Finding Nemo, and The Incredibles.

Disney has shared in the wealth since the two companies struck a partnership deal about 12 years ago. The deal soured, however, after clashes between Mr. Jobs and Disney’s former CEO Michael Eisner.

Mr. Jobs said during 2004 that he planned to terminate Disney’s distribution deal when it expires at the end of this year. But after Mr. Eisner stepped down from Disney last year, his successor, Mr. Eiger, began wooing Mr. Jobs so Disney could work more closely with both Pixar and Apple.

Last October, Cupertino, California-based Apple struck a deal with Burbank, California-based Disney to feature downloads of shows from Disney’s ABC TV network, such as Desperate Housewives and Lost, from Apple’s iTunes service when Apple introduced the video version of its popular iPod (see Apple Up 9% on Video iPod).

Disney can afford to pay a premium for Pixar, since it’s already funneling a lot of cash back to Pixar through its distribution deals and already has to bear the costs of producing its own films. Disney’s own animation efforts have not been faring nearly as well as Pixar’s lately, and have included some notable flops, such as Brother Bear in 2003.

And Pixar brings a lot of innovation to Disney, especially in the area of computer animation.

Pixar began when Mr. Jobs bought the computer graphics animation division of Star Wars filmmaker George Lucas’s Lucasfilm during 1986 for $10 million. He named the company Pixar and paid to produce some of its first short films out of his own funds.

Mr. Jobs holds 60 million shares of Pixar, with 50.6 percent of the shares, which will, in turn, make him the majority shareholder in Disney. Meanwhile, the TCW Group in Los Angeles holds 16 percent of outstanding shares with 19.7 million shares, followed by Wellington Management with 8 million. Mr. Lasseter has 446,000 shares.

Culture Clash

Mr. Lasseter left Disney back in the days when Disney resisted moving toward computer animation techniques, and he may still clash with the corporate culture there.

Mr. Jobs may clash even more. His hard-driving style as a Silicon Valley entrepreneur has helped Pixar to make animated films in a way that sets it apart and that has positioned it above Disney, which has struggled in recent years to regain the creative instincts that made it a household name.

Mr. Jobs may be able to bring a creative spark to Disney without a major disruption to the mouse house, but he is also famously strong-willed. That may or may not mesh with the egos of the entertainment giant, which has already disgorged a similarly strong-willed leader when Mr. Eisner was pressured to resign last year.

The union of the two companies comes at a time when the long-awaited convergence of the computer and entertainment worlds seems imminent, with entertainment programming being delivered through the Internet and a widening array of devices that bring computers into the living room.

Mr. Jobs isn’t alone in moving from one world to the other. Former ABC Entertainment Chairman Lloyd Braun joined Yahoo last year, setting up an entertainment division in Santa Monica, just west of Los Angeles. And Barry Diller moved from the movie industry and Paramount Studios to lead an Internet company, IAC/InterActive (see Diller Builds Online Empire).

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