The Walt Disney Company & Pixar Inc:

To Acquire or Not to Acquire?

Group 2, Section A, PGP22

• Sayak Chakraborty: PGP/22/247
• Satyajit Roy: PGP/22/258
• Gaurav Anasane: PGP/22/262
• Ambrish Chaudhury: PGP/22/272
• Satyaki Dutta: PGP/22/379
 Synopsis
• The Walt Disney Company is an American entertainment conglomerate founded in 1923 and Walt Disney
Feature Animation began in 1934. Pixar Inc is a computer animation film studio began in 1979
• Disney and Pixar’s relationship began in 1986 when they collaborated for the developing Computer
Animated Production Systems
• Disney’s core capabilities include its wide distribution channels and partnerships, including various options
such as movies, television, merchandise and DVD. Disney has a large budget, talented human resources and
above all, a large fan base that brings strong brand loyalty all over the world
• Pixar’s core competency lies in its technological successes, such as its 3D leadership in computer
animation. Pixar has a group of very skilled people who develops top-line programs inhouse at a lower
operating cost
• With time, experience, stable finance and knowledge fetched Pixar increased bargaining power and many
more prospective partners with better deal
• Disney is in a dilemma whether to renegotiate their deal to strengthen their alliance with Pixar or acquire
it altogether

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 Present Scenario and Problem Statement
• The agreement formed in 1997 is about to end
• Pixar’s bargaining power is high and there are number of prospective partners like WB, Sony, 20th Century
Fox offering better deals
• In 2004, Pixar announced the end of their relationship with Disney and WB was ready to partner with Pixar
• Disney’s board members aren’t happy with that as they know the importance of updated animation
technology for Disney is obvious over the years
• Now they have four options in hand-
 Internal Development – Reengineering Disney Animation
 Strategic Alliance with another animation studio
 Negotiate a new distribution deal with Pixar
 Acquire Pixar
High development cost as well as long time and cost plus difficulty in negotiating a new deal made the
first two alternatives less attractive than a competent partner like Pixar. Now admitting the value of Pixar
and Disney’s relationship, the main question is how to realize that value?
o Should it be realized through a new alliance with Pixar creating updated terms? Or
o Single ownership for Disney & Pixar will create more value through better strategic fit?

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 Ally or Acquire?
Non-equity Equity
Acquisition Remarks
alliances alliances

Pixar is in charge of production while Disney then decides the

Type of Synergies Modular Reciprocal Sequential
release date & distributes it

Soft resources like experts in CG technology and CG technology

Nature of Resources Low Medium High
itself are the main contributing resources for the organization

Extent of Redundant
Low High Medium The 2D animators in Disney may not be required if CG comes in
Resources
Degree of Market
Low Medium High Disney has medium competition from DreamWorks
Uncertainty

Fierce competition owing to low entry barriers and hence more

Level of Competition Low High Medium
players

From the above framework it makes business sense for Disney to for the Acquisition of Pixar
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 TCE, Agency and Property Rights point of view……
Theory Rationale Solution

There will increase in revenues over time because owing to synergy

Transaction Cost Economics developing everything in house will be cheap. Also redundant human Acquisition
resource can be reduced and replaced with high end technology

Principal Agent Theory Dilution of EPS may result into conflicts if acquired Alliance

If acquired, Disney will get complete ownership of Technology(CG),

Property Rights Theory Acquisition
Films, characters, credits and sequels for any movie

Above theories also supports the idea of Disney acquiring Pixar

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 Financials

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 Financials

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 Thank You

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