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The Walt Disney Company and Pixar Inc.: To

Acquire or Not to Acquire Essay
Essay Topic: Walt Disney, Pixar
)The acquisition of Pixar would be bene cial to Disney due to how both companies’
businesses are related. This related acquisition would lead to the formation of more
synergies and hence create value through the integration of their resources and capabilities.
By acquiring some of Pixar’s core competencies and strengths, Disney may realise a new
growth potential while reinforcing its strategic competitiveness.
Firstly, the acquisition would cause HELP
DisneyME
’s market power to rise due to the increase of its
WITH WRITING
resources and capabilities to compete in the industry and also a greater share in the market.
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This is of great importance due to the intense competitiveness in the industry that is
dominated by only a few key players. Any increase in market power would be greatly
advantageous.
Also, by acquiring Pixar, Disney would gain access to Pixar’s leading computer-generated
(CG) animation technology at lower costs than if it were to develop similar technologies by
itself. The acquisition of such technology provides more predictable returns than developing
an internal product, which entails a great amount of risk.
In addition, Disney would reduce future costs by eliminating various fees to Pixar such as the
participation fee. Besides, physical and technological resources, Disney would obtain Pixar’s
human resources such as their highly talented and technical animators. Together with
Disney’s superior distribution know-how, they will de nitely be a force not to be reckoned
with.
Another bene t of acquiring Pixar would be that Disney would have the rights over the use of
its characters from the lms, which would propel ticket and retails sales in both its theme
parks and consumer product divisions respectively. Furthermore, it can be expected that
Pixar would generate new streams of revenue for Disney through the production of future
“smash hits” due to its stellar track record.
As a board member, by procuring Pixar, bringing on Steve Jobs to the board may prove
harmful. Due to his domineering personality, he could possibly in uence or steer the
direction of Disney as a whole. However, having him does bring its merits. It would be
excellent to have Apple’s top executive and co-founder associated with Disney which would
also bring about an expansion in reputational resources such as brand awareness,
perceptions of quality and reliability and new creditable networks, which make stakeholders
perceive Disney as superior in the marketplace. This would de nitely be bene cial for
Disney’s shareholders.
Nevertheless, Disney should exercise caution when considering the acquisition. There is the
possibility of running into integration di culties such as con icting cultures. The two
companies have very di erent cultures, which may hinder the post-merger integration. Pixar
had a relatively smaller organizationHELP
with ME
an open
WITHculture compared to Disney, which was a
WRITING
huge corporation that followed a hierarchical management structure. It is possible that the
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The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire Essay Example for Free - Sample 1590 words

cultural clash may lead to an exodus of creative talent from Pixar leading to failure of the
acquisition. Moreover, there might be ambiguity regarding who would control Pixar. In the
absence of coherent transformational leadership, the acquisition may end up destroying
value instead.
Also, the acquisition may be too expensive for Disney. The price-to-earnings ratio of Pixar
was 46, which was signi cantly higher than the industry average and Disney’s of 17.
Therefore, the potential deal may cause high dilution of shareholder’s equity, which would
pressure original stockholders to sell due to the decline in share price.
Disney’s traditional D animation movies have failed to deliver in recent times due to the
introduction and advancements of CG animation technology. Since Disney’s e orts to
initiate its own CG animation unit had been successful, Pixar’s acquisition can give Disney
access to Pixar’s proprietary CG technology and its highly technical and creative workforce.
Also, Disney’s existing co-production agreement with Pixar was to expire in 2006 and losing
Pixar to its large media competitors would be a huge threat for Disney as it struggles to
revive its animation business. Thus the acquisition of Pixar was necessary for its survival.
In addition, by having access to the Pixar brand and its characters, they would help to
supplement Disney’s existing characters across its di erent businesses like theme parks,
merchandise, and television, which provide more sales opportunities. Despite the dilution of
Disney’s earnings per share, it is for the short-term. The acquisition lls a crucial strategic
gap for Disney and can create long-term value for its shareholders. As such, Pixar is a “near
perfect strategic t” for Disney and hence should be acquired by Disney to remain
competitive. )Pixar had a few alternatives besides being acquired by Disney. One
alternative for Pixar was to vertically integrate forward and enable distribution of its own
content instead of relying on Disney by acquiring smaller media companies. However, this
would be a highly unrelated diversi cation for Pixar and possibly create diseconomies of
scope. Pixar would also face rigorous competition from other media conglomerates like
Disney, Universal and Paramount.
Pixar, being a leader in CG animations and having an exemplary track record of producing
blockbuster hits, had a lot of potential suitors which include Warner Bros., AOL, Time
Warner, Fox and Sony. Any media companies that strikes a deal with Pixar may instantly
forefront the animation market. Thus we see that the competitive advantage of Pixar in the
domain of CG animation gave them with multiple suitors to collaborate with. So another
alternative was for Pixar to form a deal, similar to the one which Lucas lm had with
Twentieth Century Fox, with some other media conglomerate. Although this alternative is
attractive for Pixar as they are in a commanding position, it would mean there would still be
two di erent companies with two di erent group of shareholders and hence, two di erent
visions. Also, this could possibly mean that Pixar would have to give up the rights to the
characters and lms they had made in partnership with Disney.
There are also bene ts for Pixar fromHELPbeingMEacquired by Disney, which may outweigh the
WITH WRITING
bene ts from the aforementioned alternatives. The acquisition provides a competitive
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The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire Essay Example for Free - Sample 1590 words

advantage as Pixar can market its content through Disney’s well- established distribution
systems compared to other inferior distributors. The distribution costs of the lms for Pixar
would also be much lower than that of its competitors. This would allow Pixar to focus on its
core strengths of producing its CG animation, without investing money, time and e ort in
distribution and production. In addition, Disney has the resources and capabilities to
produce merchandise and sell in retail spaces or theme parks so Pixar could also gain from
other lines of products such as toys, apparels and other memorabilia, which they originally
had no market share of. One successful example of the above-stated leverage is the Pixar-
Disney lm, “Cars”. Though it was not considered a big blockbuster, the revenues in retail
products reached about $5 billion for “Cars” only through sale of games, an ice-skating
show and a “Cars”-themed world in their theme parks.
Moreover, acquisition by Disney would increase the price-to-earnings ratio of Pixar, which
would be welcomed by the investors and shareholders alike. Pixar shareholders would
receive
2.3 Disney shares for every Pixar share they own.
There were also constraints faced by Pixar, which could cause complications for them if they
were to disengage with Disney. Pixar was still obligated to Disney to produce three lms
under its present arrangement and the hold over sequels of successful lms made by
Disney-Pixar would su er as mentioned in the contractual agreement.
Both Disney and Pixar are two major players that have been standing the test of time in the
animated lm industry. Their synergy in the past has produced blockbuster hits in the box
o ce and home video sales. Disney has plenty of capital and an existing expansive network
of theme parks and distribution channels while Pixar has a huge and attractive talent base
with proprietary CG animation technology. The combination of these two companies will be
very di cult for competitors to imitate causing a less intense rivalry in the industry.
With the combination of Disney and Pixar, this would decrease the bargaining power of the
buyer in the perspective of Pixar due to multitude of channels that Disney provides
consumers with easy access to watch its lms. Together, the threat of substitutes will be
reduced. Substitutes such as other forms of entertainment may not match up to the appeal
that Disney creates with its brand reputation for its existing established customer base.
Upon assessing the di erent alternatives, and using the essential tests: better-o test (the
new unit must gain competitive advantage from its link with the cooperation or vice versa),
the cost-of-entry test (the cost of entry must not capitalize all the future pro ts and the
attractiveness test (the industries chosen for diversi cation must be structurally attractive or
capable of being made attractive) it can be seen that being acquired by Disney passes all
these tests and creates shareholder value for Pixar which would be in the best interest of
Pixar’s shareholders.
References: HELP ME WITH WRITING
( )
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7/18/2019 The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire Essay Example for Free - Sample 1590 words

Alacer, J., Collis, D., Furey, M. (2010), The Walt Disney Company and Pixar Inc.: To Acquire or
Not to Acquire?, Harvard Business School
Barnes, B (2008), Disney and Pixar: The Power of the Prenup [Online] [Available]
http://www.nytimes.com/ / / /business/media/ pixar.html? [16 Feb 2014]
Hitt, M., Ireland, R., Hoskisson, R. (2013) Strategic Management: Competitiveness &
Globalisation, th edition, Cengage Learning
Porter, M. (2013), On Competition, Harvard Business Press
The Walt Disney Company (n.d.), Disney History [Online]
[Available] http://thewaltdisneycompany.com/about-disney/disney-history [16 Feb 2014]
Pixar Inc. (n.d.), The Pixar Timeline: 1979 to Present [Online] [Available]
http://www.pixar.com/about/Our-Story [16 Feb 2014]

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