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Andrea Cortiles / Manuel González / Manuel Villamisar 06/05/2019

Walt Disney Company and Pixar Inc.: To acquire or No to Acquire?

1. Which is greater: the value of Pixar and Disney in an exclusive relationship, or the sum of
the value that each could create if they operated independently of one another or were
allowed to form relationships with other companies? Why?
It is undoubtedly the case that both firms standing alone by their own way, would be far less
valuable for them than working hand by hand. If we took Pixar as an independent, it is
impossible for them to reach a better distributor than the Disney Company as well as if
Disney operated alone, they could not find an animation company like Pixar.
It could possibly be said that Pixar enjoys state of the age technology and brand-new talent
for animation films to be project. However, they are not a distributor and that is where their
weakness stands.
2. Assuming that Pixar and Disney are more valuable in an exclusive relationship, can that
value be realized through a new contract? Or is common ownership required (i.e., must
Disney acquire Pixar)?
If the new contract proposed by Steve Jobs was accepted and both companies started to
operate according to it, The Walt Disney Company would be the sole distributor of the next
films (The Incredibles and Cars), leaving it with around 10% of the film’s revenue, or $52m,
instead of $319m. We can see the impact on revenues of a change in contract terms in the
next Figure:

Revenues as % of Profit Revenues as % of Profit

(Original terms) (New suggested terms)

Pixar Disney Pixar Disney

We can also realize that with the hypothetical implementation of this contract, while The
Walt Disney Company sees its contract revenues decreased by approximately 83%, Pixar
increases its revenues by 233% (using for the chart and the subsequent explanation the data
available in Exhibit 8).
Consequently, we can conclude that with the demands both parties it’s difficult to reach the
same value through new contracts, but if both companies remain standalone, a lot of
transaction costs arise.
Then, to maximize each firm’s value, both firms should merge, so the expected and desired
synergies between both companies could arise. From the point of view of The Walt Disney
Company, when acquiring Pixar directly acquires the huge talent of its animators and the
know-how of the company in producing 3D pictures (this leads the revenue of Disney to
increase). On the other hand, Pixar can specialize in its operations and focus on R&D for
increasing the quality on its pictures without wasting money in distribution of films.

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Andrea Cortiles / Manuel González / Manuel Villamisar 06/05/2019

3. If Disney does acquire Pixar, how should Bob Iger and his team organize and manage the
combined entity? What challenges do you foresee, and how would you meet them?
If Disney acquires Pixar we think that Disney should use a multi brand strategy and allow
Pixar to act on an independent way with their own brand and firm culture
One of the most valuable assets of Pixar is the talent of their employees so that a challenge
during the transaction process might be retaining Pixar workers on the resulting firm. To
make them stay in the new organization Disney should maintain the characteristics that
make Pixar an attractive place to work as the organization on a campus, the fact that
employees have liberty to communicate among them and the fact that producers and
directors have freedom to work in their films

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