Disney Sets $7.4 Billion Pixar Deal
Jobs to Take Seat on Board
And Play Integral Role
In Setting Creative Course
By MERISSA MARR and NICK WINGFIELD
Staff Reporters of THE WALL STREET JOURNAL
January 25, 2006; Page A3
With Walt Disney Co.'s $7.4 billion deal to acquire Pixar Animation Studios, the
combined animation powerhouses face a tricky task: how to revive Disney's animation
efforts without disrupting the formula that has made Pixar one of the most successful
moviemakers in Hollywood history.
The stock deal announced yesterday represents a quick fix for Disney's lagging animation
business, which relies on movie characters that can be spun across its theme park,
merchandise and television empires. Pixar has in the last decade become the gold
standard in animated filmmaking with computer-generated hits like "Finding Nemo,"
while Disney's own efforts have tailed off in popularity, and its pipeline is uncertain.
Disney has benefited from Pixar's success by co-financing and distributing Pixar films,
but that arrangement was set to expire this year.
The proposed deal comes with risks. Disney is acquiring Pixar in the midst of a profitable
winning streak -- all six of its movies have been blockbusters -- in a business where
failure is considered an inevitability. It also comes when revenue from DVD sales, a key
movie-industry driver, may have passed its peak. And the companies face a cultural
challenge in trying to maintain Pixar's esprit de corps.
As part of the deal, Pixar Chairman and Chief Executive Steve Jobs will become Disney's
largest individual shareholder and a key adviser at a time when the entertainment industry
is scrambling for ways to reinvent itself in a digital era. Mr. Jobs, who also heads Apple
Computer Inc. will join Disney's board and take a stake of around 6.5%. He ruled out
becoming Disney's chairman in future, however, saying: "that's not on my radar. Being
chairman of a public company is an awful lot of work."
Regardless, even Mr. Jobs' Pixar colleagues expect him to become a potent force on the
Disney board. "They're going to have to install seat belts in that board room because
when Steve gets in there, he'll be a ball of fire," said John Lasseter, the Pixar creative
guru who will play a pivotal role in the combined company. (See related article.)
In an interview, Mr. Jobs said an important consideration in the decision to unite with
Disney was Pixar's desire to make new movies based on existing Pixar characters. Under
their distribution deal, Disney retained rights to create sequels to Pixar movies. "The
opportunity to reunite the family was certainly a factor in our decision," Mr. Jobs said.
He added that Disney was the only company with animation in its DNA and an
"incredible collection of unique assets like theme parks."
Mr. Jobs, who owns 50.6% of Pixar's stock, is making his move as Pixar's stock hovers
around an all-time high. Pixar's stock has rallied 33% since the start of 2005. In 4 p.m.
composite trading on the Nasdaq, Pixar shares were down 1.2% at $57.57. Disney shares
were up 1.8% at $25.99. As part of the agreement, Disney will issue 2.3 of its own shares
for each Pixar share. The total price includes $1 billion of Pixar cash.
MAKING A DEAL
• Gallery of key players in the Disney-Pixar deal
• Track the ups and downs of the companies' stocks
• Disney's statement on the acquisition
WALL STREET JOURNAL VIDEO
Pixar CEO Steve Jobs and Disney CEO Bob Iger discuss the deal.
For Disney, CEO Robert Iger said the consideration was about "getting a business that is
vital to the future of Disney right." In evaluating the price, Disney said it was confident
Pixar's box-office success would continue but recognized that not all its future films
would be sure-fire hits. The company also took into account the current trends at the box
office and in DVD sales.
Messrs. Iger and Jobs acknowledged that the key was to maintain Pixar's unique culture.
"Most of the time that Bob and I have spent talking about this hasn't been about
economics, it's been about preserving the Pixar culture because we all know that's the
thing that's going to determine the success here in the long run," said Mr. Jobs. At the
same time, Pixar President Ed Catmull and Mr. Lasseter will "help provide a slightly
different culture at Disney feature animation that will maximize some of the talent there
to make even better films," said Mr. Jobs.
Mr. Catmull, who co-founded the studio, will become president of the combined
Pixar/Disney animation business. Mr. Lasseter will take a role as chief creative officer of
the combined company as well as a creative role advising Disney's Imagineering division,
helping design attractions for the theme parks. Pixar will remain based in Emeryville,
Calif., far from Disney's Burbank, California, home.
Another vital piece of the puzzle is securing Pixar's core creative team beyond Mr.
Lasseter, including the likes of Pete Docter, Andrew Stanton and Brad Bird. Mr. Iger said
Disney would continue with Pixar's practice of not making its creative team sign
contracts. However, he said they would be enticed with Disney stock options.
Mr. Iger said he first considered an acquisition while watching a parade of characters at
the opening of Hong Kong Disneyland last September. In buying Pixar, Disney leapfrogs
back to the top of an increasingly crowded competitive landscape in animated films. That
field includes not only DreamWorks Animation SKG, home of the "Shrek" movies, but
also other players that have emerged in the last couple of years.
A big question is how good Pixar's pipeline is going forward. From its first movie, "Toy
Story," through 2004's "The Incredibles," every Pixar film has been a substantial hit.
Pixar's next movie is "Cars." But Pixar hasn't announced its slate beyond that.
Disney said the plan was for Pixar and Disney to each make one animated movie a year,
although there may be years when they make more movies.
The deal won praise from Roy Disney, the company's former vice chairman and a major
shareholder who led a shareholder revolt against the company in 2004. "This clearly
solidifies the Walt Disney Company's position as the dominant leader in motion picture
animation and we applaud and support Bob Iger's vision."
Disney was advised by Goldman Sachs Group Inc. and Bear Stearns Cos. and law firms
Dewey Ballantine and Skadden, Arps, Slate, Meagher & Flom. Pixar was advised by
Credit Suisse and law firm Wilson Sonsini Goodrich & Rosati.
Write to Merissa Marr at firstname.lastname@example.org and Nick Wingfield at