Pixar-Disney Merger

--- tags: Advanced Project Engineering --- #### Assignment Step 1: Identify a Merger or Joint Venture of interest for you (e.g. IBM-Lenovo / Sony-Ericsson / Renault-Nissan / Daimler-Chrysler / Pixar-Disney…) Step 2: Evaluate the reasons why this Merger or Joint Venture is still successful or failed - Which strategic considerations led to the decision for a merger of the companies? - What cultural diversities can be obstacles for your IJV or merger? - What is either the success factor or the reason for the failure of the IJV/merger? - What are there economical developments that influenced the IJV or merger? Write an essay of 3-5 pages (.doc) to describe your results in a team of 2-3 students (cover pages will not be counted, 10pt-12pt, ) --- --- --- # Pixar-Disney Merger This essay identifies why Disney and Pixar decided for this Merger, which cultural differences could have been obstacles, what the success factors of this merge aghjghre and which economical developments influenced it. In the end, the current situation of Disney Pixar is stated. ## Pixar Pixar is a computer animation studio based in California. In 1986, Steve Jobs the Co-founder of Apple bought the "Industrial Light and Magic" department from Lucasfilm, which was renamed to Pixar. In turn, Steve Jobs became CEO. The first great success was Toy Story in 1995 which resulted in Pixar stock doubling in value. ## Walt Disney Company The Walt Disney Company (WDC) also known as Disney is an American media company. In 2006, Disney bought in an all-stock transaction Pixar for $7.4 billion. Up until that point, Disney had released all of Pixar's films, but the distribution deal was set to expire following the release of the animated film Cars. ## Strategic considerations Disney, the largest media company with close to 70 billion annual revenue has grown through high-profile acquisitions. The two main goals of Disney are market power growth and profits. With the acquisition, Disney would not only decrease its number of competitors (at that time three) but Pixar would significantly enhance Disney's animation since Disney had a skill gap in the computer-animated film area. At that time Disney's recent animated film "Chicken Little" wasn't performing as well as any of Pixar's movies. Disney had to take a $98 million write-down because of the in 2002 published "Treasure Planet" film. Shortly after the deal's announcement, critical voices have been raised, that Disney may be paying too much for Pixar. That the deal would reduce Disney's earnings in 2006. However, it's not about how much the earnings of Disney will decrease, rather it's about what they miss if Pixar will be bought by a competitor. As Barry Ritholtz, a chief investment officer with Ritholtz Capital Partners said: > "The question isn't did Disney pay too much but how expensive would it have been for Disney if Pixar fell into someone else's hands,". There had been acquisition discussions before in 2004 but failed due to a strained relationship between Steve Jobs and former Disney CEO Michael Eisner. But since Robert Iger took over Eisner's post as CEO of Disney, the discussions have resumed. Because of the good relationship with Steve Jobs, many deals were in the making. For example, Disney agreed to sell ABC primetime shows on Apple's popular iTunes music and video store. In the long term, it was a smart strategic deal. Also, Disney's theme parks would benefit from some important Pixar's figures. Pixar, however, had problems selling the Pixar Image Computer. Not only because of the high price tag of $135.000. Disney used dozens of the Pixar Image Computers for their Computer Animation Product System. Furthermore, Jobs had to sell the hardware division to another firm because of an operating loss of $8.3 million in 1990. ## Cultural diversities Although Disney and Pixar had similar visions and goals there are still cultural diversities that could have lead to difficulties during the merge. On the one hand, there was Disney with a stiff and more business-like culture. On the other hand, there was Pixar with a more relaxed atmosphere and t-shirt and slacks approach. Though both companies had a collective culture, they executed the collectivity differently. Disney was generally more structured than Pixar, with e.g. top-down feedback and enforced guidelines. Another difficulty could have been the integration of the small, independent Pixar studio into a behemoth corporation like Disney. Another critical factor could have been Steve Jobs and his forceful personality which would not fit Pixar's mentality. At Pixar, the whole staff, technical and creative development groups, worked together. The main intention was that the story came first and that creativity exists everywhere. Pixar strongly believes in the primacy of people. Therefore they did not only hire well-qualified staff, but employees were also picked based on whether they fit in the company. The main requirements were to find talented and creative people to create a trusting and collaborative environment. Pixar operated mainly according to three principles. The principles say that everyone must have the freedom to communicate with anyone, that everyone must be safe to offer ideas and that they stay close to innovations happening in the academic community. A key difference was the release management. While Pixar only released one film a year and balked at the idea of sequels, Disney released more than one film per year and had strict sequels to come up with. Furthermore, the Walt Disney Company had an as they call it "organizational culture for excellent entertainment". Although both were focussing on their employees and were likely to support them to work creative, Disney had more focus on performance than Pixar. Furthermore, Disney focused mainly on success. The main characteristics of Disney's corporate culture are Innovation, Decency, Quality, Community, Storytelling, and Optimism. As we see, the main points of corporate cultures were nearly the same at Pixar and Disney, but they were realized different. So the main difference between these two and maybe the biggest obstacle remains in all sectors: There's a small, creative, unstructured company on the one hand and a big, American-typical, structured and success-driven company on the other hand. That is the biggest obstacle in this merge. ## Success factors There are a few reasons for the success of the merger between companies. Before the merger was even proposed Disney had a production agreement with Pixar that allowed the two companies to get familiar with each other's methods and culture. Although the joint venture was later called off due to the clashes of Steve Jobs and Michael Eisner, the short joint venture was an important first encounter for both companies. After Mr. Eisner has been replaced by Bob Iger, the merger discussion came back to the table. This is another key reason why the merger was a success. Mr. Iger has been through two mergers at ABC network and was able to confront and talk about any problems and opportunities of a merger. Mr. Iger was well aware of the problems that different corporate cultures can cause from his own experience. In addition to normal merger tactics, both companies came up with different ones as well. Mr. Iger was more willing to accept Pixar's culture as part of its strength and immediately agreed to some important requests. Pixar employees were allowed to keep their amazing health benefits and were not required to sign contracts of employment. These promises that were made were reviewed after a year and every single one of them was kept. With these gestures, trust was established and Pixar became more open to Disney itself. Another key success factor of the merger were the investors who saw the potential for Disney and Pixar's computer-animated characters. They could be a part of Disney's vast networks, one successful example was "cars". The revenue of the worldwide box office of cars was over 460,000,000\$. As executives had ideas of alternative production channels, direct to DVD was accepted to be a part of the Disney-Pixar portfolio. Pixar's willingness to change and be a part of an international conglomerate helped to seal the deal as well. Lastly, the transformational leadership at Pixar was brought over to Disney. The ability to lead and motivate employees at Pixar combined with the dynamic environment was well known at Pixar and was finally brought over to Disney which adopted it. ## Economical influence As Pixar movies have been very popular and their animated movies were on top of their league a merger with another company would likely throw of Disney of its throne in the animation business as Disney still concentrated on hand-drawn animations. Due to the fast-changing developments concerning technique, they needed this change. Before the merger, Pixar had yet to have a flop with its six animated movies where on the other hand Disney struggled in the computer-generated area. So they easily could combine their strengths. A big economical factor for Disney was to get their animated business back to where it was. ## Conclusion Nowadays Disney Pixar is under the 100 largest companies measured by their market value with a value of 238.1 billion US Dollars. Their theme parks are the most visited in the world. In 2018 they had a market share of 26 % only in North America. This year Disney Pixar got 9 nominations for the Golden Globe and earned about 75 billion US Dollars so far. The revenues were constantly increasing since the merge until today. Pixar generated more than 7 billion US Dollars for Disney since the merge and they drove the Disney merchandise extremely. Furthermore, the Parks & Resorts segment benefited from the merger as well. Disney’s Toy Story Land and Cars Land are quite popular among tourists. The merge is still a huge success and Disney made everything right in merging with Pixar. ### References Wikipedia. Pixar. (2019) https://en.wikipedia.org/wiki/Pixar Wikipedia. The Walt Disney Company. (2019) https://en.wikipedia.org/wiki/The_Walt_Disney_Company Paul R. La Monica. Disney buys Pixar. CNN Money. (2006) https://money.cnn.com/2006/01/24/news/companies/disney_pixar_deal/ Joe Mahoney. Strategic Alliances and Mergers & Acquisitions. Business Illinois (2018) https://www.business.illinois.edu/josephm/BADM544_Spring%202018/BA544%20Chap009a_Spring%202018.ppt Marat Kochnev. Companies’ mergers and acquisition in example of Walt Disney Studios and Pixar https://is.muni.cz/th/pw4t2/MARAT_KOCHNEV_FINAL_VERSION.pdf Brooks Barnes. Disney and Pixar: The Power of the Prenup. The New York Times. (2008) https://www.nytimes.com/2008/06/01/business/media/01pixar.html The associated Press. Pixar Becomes Unit of Disney. The New York Times. (2006) https://web.archive.org/web/20110423133903/http://www.nytimes.com/2006/05/06/business/media/06pixar.html David A. Price. How Pixar Cheated Death. Inc.studio. (2006) https://www.inc.com/magazine/20060601/priority-turnarounds.html Box office numbers Cars https://www.the-numbers.com/movie/Cars#tab=summary Wikipedia Bob Iger https://en.wikipedia.org/wiki/Bob_Iger Master Thesis on Faculty of Economics and AdministrationField of study:Financial ManagementCompanies’ mergers and acquisition in example of Walt Disney Studios and Pixar https://is.muni.cz/th/pw4t2/MARAT_KOCHNEV_FINAL_VERSION.pdf Background information https://ivypanda.com/essays/culture-and-organisation-pixar/ Disney animation saved by buying Pixar https://www.thewrap.com/buying-pixar-didnt-kill-disney-animation-saved/ Economical influences https://money.cnn.com/2006/01/24/news/companies/disney_pixar_deal/ Change management failure https://daniellock.com/avoid-change-management-failure/ Statistics https://www.statista.com/topics/1824/disney/ Success figures https://marketrealist.com/2017/11/disneys-pixar-holds-key-film-success/