This case study analyses and differentiates the merger and acquisition strategy for the companies of Disney and Pixar, In the first section, you will find the brief analysis of the market share and competitor overview of the Animation, production and CG industry . In the next two sections, the detailed analysis of the companies Disney and Pixar are considered with respect to the acquisition regarding the view of each firm respectively. The fourth section explains complementary and counter-arguments and an analysis of a strategic merger and acquisition proposal for each company respectively. The final section: conclusion, interpretations, assumptions and suggestion showcase the final thoughts interpreted through the strategic merger and acquisition analysis.
Animation market analysis and prominence:
With the evident box-office hits of animation and 3D-Computer graphic films namely Toy story, Finding Nemo, there was a sudden competitive rise in the CG industry as a whole, production companies fought internal battles in-order to dominant the market. Pixar was one of the top contenders in this competitive market, followed by DreamWorks. Disney had a few box-office hits in 2D animation during this period of 2D animations: like snow white, 1934; but, was struggling to keep up with the technological computer rendering production studios, this is where the conflict arises and raised the argument: whether Disney should acquire Pixar or not. With the event of having a limited 5-film partnership, is it in Disney’s best interest to acquire Pixar? Will Pixar’s freedom and unchained creativity fit and be complementary to Disney’s governance or will be do more harm than good? This is the present dilemma in this case-study: Also, whether Disney has to acquire Pixar in-order to achieve competitive market advantage?
Strategic merger and acquisition interpretations and assumptions:
Pixer is a creative, open-end corporate environmental and extremely passionate with its animations and creations. Pixar operated on three principles, “everyone must have freedom to communicate with anyone”, “it must be safe for everyone to offer ideas”, and “stay close to innovations happening the academic community”.Incoherently it was stated and remunerated during that time “Lasseter was the only difference between Disney and Pixar”.
Robert Iger and many agree that, Animation is an integral part to Disney’s corporate strategy because these animated characters complimented directly to the success of the theme parks and consumer product divisions in accessories, home video, toys, brand value, etc of Disney as a whole.Such an example is the evident popularity of Disneyland which was pushed through the saturation level due to the immense world-wide popularity of Mickey mouse and other animated characters of Disney.
Pixar in the other hand had a proven track record for box-office hits especially in association with Disney. In nay contrasted view, the control the synergy made sense.Many concluded that Disney and Pixar was a perfect fit as they perfectly complemented each other in various ways, some even proclaimed that bring Jobs and lasseter in the field will bring henceforth be equivalent to bringing back Walt Disney himself.There was also an intriguing challenge point in the face of creativity and leadership, Steve jobs was back as a the CEO of apple, the question was whether will pixar suffer with the low focus on pixar on the behalf of steve jobs? What if both steve jobs and Lasseter left, Disney would be buying only technological resources.One of the most decisive reasons that pixar had been able to emerge as a leader in animation and productions was due to the seer leadership and visions of the founders Steve jobs and lesseter.In a counterargument, there is a possibility of Disney acquiring Pixar and indulging in a self- deprecating side form of Pixar in the coming years.
Similarly like for an example consider Disney’s merger and acquisition of Miramax was kept to a side-panel and governed upon self-decision based constriction. Many argued that one of the compelling reasons for the success of pixar is because of its freedom given to each and every employee and designer to have a voice and contribute in a large-scale basis in the development of a project and movie.
Pixar had a fear that an acquisition and merger with Disney will hold its freedom and creativity to create based on its core competencies of creativity and rapid change and adaptation.From the rationalized point of view of Deutsche bank analysts, Disney could as well as make 65 sequels to the Pixar hits under the $6.5 billion purchase price.
Regarding the financial point of view, according to investment banking analysts: if Disney purchased Pixar, the enterprise fee would be in the range of $6.5-$7.4 Billion. At that period, Pixar was evaluated at $5.9 Billion market capitalization. Taking into account Disney’s previous acquisitions, they would likely use an exchange of stock at a price of $7.5 Billion at a 2.3:1 Disney: Pixar share exchange ratio.Credit Suisse valuated pixar ranging from 1.093:1 to 2.365:1, from pixar’s balance sheet.This meant in the view of Disney, this acquisition is quite highly priced, which a projected price-to-earnings ratio for pixar at 46. Where was Dreamworks, pixar closed competitor has a price-to-earning ratio of 30, evaluated at $2.6 billion and revenues of nearly $1 billion.But, in an alternative point of view, the acquisition of pixar may cause a heavy dilution with Disney at a trading P/E of 17.
Pixar had three proprietary technologies : RenderMan, Marionette, and Ringmaster.In 1989, the company sold the co-operative, license rights to Disney, Sony, lucasFilm and Dreamworks forming a strategic competitive partnership with its competitors, which they utilized to create box-office hits such as Jurassic Park.This was one of Pixar’s main source of revenue during the company’s early stage.
Pixar also created a part of its revenue using its graphical tools to create ads and commercials with coca- cola, Listerine, etc until 1996.
Pixar’s had competitors as the CG market grew in the early decade of 2000, Pixar competed with Fox, Sony, Lucasfilm, Dreamworks, MGM, Universal, Paramount and to an extent, even Disney.Pixar’s most formidable rivals were Dreamworks, Katzenberg: the owner of the popular Shrek Franchise.Katzenberg with its alternate : adult targeted animation movies such as shrek was a huge success, which changed the view that animation movies are only to be for children.Dreamworks during the years between 1998 and 2005, released several successful films: Antz, Shark Tale, Shrek 2, and Madagascar.