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The Walt Disney Company and Pixar, Inc. To Acquire or Not to Acquire Case Solution
The case study tends to describe a prospective acquisition of Pixar by Walt Disney for $7.4 billion with respect to a conversion ratio of 2.3 shares of Disney. Disney as a conglomerate consider the acquisition from a synergistic point of view, whereby allowing for value creation as opposed to value destruction. The important aspect of the acquisition is that Pix would retain its brand image and the Pixar culture, with respect to creativity, facility, employee rules and regulations, and so on and so forth. However, the future films of Pixar would be titles Disney Pixar. Disney considers it important with respect to abating competition, knowledge sharing, skill sharing, human resource sharing, and the proliferation of ideas, which have become relatively redundant for Disney over the years.
Following questions are answered in this case study solution
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?
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 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?
Case Analysis for The Walt Disney Company and Pixar, Inc. To Acquire or Not 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?
Walt Disney in 2006 announced the strategic acquisition of Pixar for $7.4 billion with respect to a conversion ratio of 2.3 shares. This conversion ratio implied that Pixar’s shareholders interest would not be diluted. In fact, Steve Jobs (owner of Pixar), became the highest shareholder of Disney with a significant stake of 7%. The synergistic value of an exclusive relationship between Pixar and Walt Disney is more beneficial on a mutual basis. For instance, both companies can maintain their animation facilities as they wish and retain all their employees. Additionally, since Pixar’s competitive advantage lies in the production of computer animated featured movies, whilst Disney’s strength lies in the overall framework of marketing and distribution system, it would enhance the horizons of an efficient system.
Albeit, Disney acquired a 100% stake of Pixar, depicting no dilutive capacities of Pixar’s competency, Disney used Pixar’s strengths to enhance its own creative capabilities. For instance, Disney leveraged Pixar’s brand image and creativity to enhance the synergies; whereby, the new brand was called “Disney-Pixar” to perpetuate the marketing aspect of new movies like “Cars”. Furthermore, this acquisition allowed the consolidation of an extremely talented human resource, which was utilized in terms of knowledge sharing, experience sharing, and work sharing. Furthermore, the acquisition led to a decrease in market competition because Pixar was the largest market player in the production of computer animated movies, hence, Disney’s market share accentuated in the aftermath of this strategic acquisition.
Walt Disney is essentially a conglomerate with numerous lines of business, inclusive of its animated movie production business. On the other hand, Pixar is solely a producer of computer animated movies. Individually, they stood firm in their own regards, profiting from their specialties. Disney was unable to work out its animation business because it required a lot of creativity which evidently lacked with the human resource of Disney, yet was amply available in Pixar. This horizontal acquisition has a lot of potential synergistic value. Primarily, it brought in a new wave of creative designing and sharing expertise, which aided Disney to produce successful movies like Bolt. Additionally, softening to ideas like direct-to-DVD animated films and sequels allowed Disney to utilize its expertise in marketing and distribution.
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?)
Common ownership is essentially identified as an ideal situation whereby Disney can utilize the key elements of Pixar’s competency to its discretion with complete flexibility. Having said that, it is not the only way to go, in other words, alternative contracts may turn out to be equally if not largely beneficial. The question arises as to what these alterative contracts may be?
What is being considered from the common ownership is essentially horizontal diversification by Walt Disney. However, another possibility could have been to merge Pixar and Walt Disney, which would imply a whole lot of cost cutting, loss of jobs, cultural tensions, and resistance to managerial changes with respect to organizational rules and regulations. There are essentially two ways to look at it; firstly, the optimistic approach entails that Disney considers a merger and a single entity arises from the ashes of two organizations, namely Disney-Pixar. Considering the elements of retaining top talents from both organizations and creating an environment acceptable to both cultures, whilst, retaining Disney marketing and distributional competencies and Pixar’s creative computer animation capability, would allow for a similar value creation as that of an exclusive relation; whereby, the profits may be humongous, but so is the cost of running two parallel, if not, equally equipped entities. Secondly, the pessimistic approach entails that the merger allows for employment cuts, which creates tensions and probably the creation of a firewall between the employees of the two organizations, resisting knowledge sharing and skill sharing. Additionally, the loss of brand image pertaining to Pixar, could damage the reputation of Disney because the loss of brand image is essentially a loss of synergistic value. So what can be deduced from the strategic variation in the contract is that the possibilities are numerous, but the riskiness of those contracts is way over what can be reaped as benefits.
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