Background
The Walt Disney Company and Pixar Animation Studios Inc. were two of the largest
movie and entertainment studios. Disney owned and operated an unparalleled portfolio of
theme parks, classic movies and characters. Pixar was the leading creative and
technological computer generated imagery (CGI) studio but lacked extensive product
offerings and distribution channels.
Motivations
At the time of the merger agreement, Disney’s traditional hand-drawn animation films
were declining in popularity with the introduction of CGI films. Meanwhile, Pixar
possessed the creative and technical resources that Disney lacked, but was unable to profit
from characters and films after movie ticket and DVD sales, which were typically
one-time purchases. Additionally, the production and distribution contract between Pixar
and Disney was rapidly approaching its expiration. Instead of renewing the contract, the
two companies decided to merge with the intention of capitalizing on synergies and
becoming the biggest player in the CGI industry against rivals such as DreamWorks and
20th Century Fox. Disney would be able to incorporate Pixar into the Walt Disney
Imagination studios and own the world’s most prestigious computer animation studio.
Conversely, Pixar would be given access to Disney’s massive portfolio, continue to operate
as a separate entity, and receive Disney funding for and distribution of films, as well as the
ability to profit from sales of merchandise and entertainment, including toys, apparel and
amusement park features.
Analyst & Market Reactions
Several recent media mergers had failed to meet expectations and as such, many analysts
were pessimistic about the deal. Bruce Greenwald, a professor at the Columbia Business
School thought the merger was unnecessary for Disney and stated, “There was never
anything that stopped [Disney] from building rides, movies, etc. around these characters on
the basis of licenses… This [merger’s success] does not mean that it makes sense for them
to have bought Pixar for billions of dollars to achieve the same result.” However, other
analysts were highly optimistic of the merger. Peter Cuneo, former CEO of Marvel
Entertainment, suggests that Disney’s ability to acquire and run characters through existing
assets, such as theme parks and merchandising, is Disney’s core competitive advantage
because it would otherwise require capital that other entertainment companies do not
possess. Martin Pyykkonen, an analyst at Wedge Partners further stated that “Disney’s
whole is greater than the sum of its parts… Disney’s broad base of characters give it more
segment-to-segment synergy than any other consumer media company.” Overall, analyst
speculation was strongly conflicted, some felt the deal was too risky, others felt that
