Pixar and Walt Disney Merger

NEW YORK Mickey cower and Nemo are now incarnate cousins. Walt Disney has announced that it is buying Pixar, the joyous studio led by orchard apple tree head Steve Jobs, in a deal worth $7. 4 one million million. guess more or less a deal being imminent raged on hem in Street for the past a couple of(prenominal) weeks. Disney has released all of Pixars films so far, but the companies reliable distribution deal was set to expire following the release of this summers Cars. The jointure brings to departher Disneys historic franchise of animated characters, such as Mickey, Minnie Mouse and Donald Duck, with Pixars stable of car likewisen hits, including the two toy dog Story films, Finding Nemo and The Incredibles. Disney and Pixar buttocks now collaborate without the barriers that come from two incompatible companies with two different sets of shareholders, said Jobs in a statement. Now, everyone can focus on what is intimately important, creating innovative stories, char acters and films that delight millions of people around the world. As part of the deal, Jobs entrust become a shape up member of Disney, the companies said.And John Lasseter, the highly reckon creative director at Pixar who had anteriorly worked for Disney, will rejoin the dramatic art of Mouse as chief creative officer for the comp whatsoevers combined animated studios and will besides jockstrap oversee the de quality for new attractions at Disney theme parks. The addition of Pixar significantly enhances Disney animation, which is a critical creative locomotive engine for driving growth across our businesses, said Disney chief operating officer Robert Iger in a written statement. During a conference call with analysts Tuesday, Iger said that acquisition discussions had been firing on for the past several months.Jobs added that after a lot of understanding searching, he came to the conclusion that it made the most sense for Pixar to align itself with Disney permanently in stead of trying to distribute films on its own or sign with another movie studio partner. According to the terms of the deal, Disney (Research) will affair 2. 3 shares for each Pixar share. Based on Tuesdays closing hurts, that values Pixar at $59. 78 a share, most a 4 percent insurance premium to Pixars current stock price. Shares of Pixar (Research) fell just about in systematic avocation on the Nasdaq Tuesday but gained nearly 3 percent in after-hours trading.The stock has surged more than 10 percent so far this family on takeover speculation. Disneys stock gained 1. 8 percent in regular trading on the New York Stock Exchange and was flat after-hours. earlier to the deals announcement, some Wall Street observers had speculated that Disney may be paying in addition much for Pixar. A source tells FORTUNE that some Disney board members also thought the price was too high. To that end, Disney chief financial officer doubting Thomas Staggs said during the conference call th at the deal would reduce Disneys earnings slightly in fiscal 2006, which ends this September, as tumefy as fiscal 2007.He added though that Pixar should add to earnings by fiscal 2008 and that Disney was still on sign to post annual double-digit percentage gains in earnings through 2008. only when one hedge fund manager said that the risk of Disney losing Pixar was too great. The question isnt did Disney pay too much but how expensive would it befuddle been for Disney if Pixar fell into someone elses hands, said Barry Ritholtz, chief investment officer with Ritholtz smashing Partners, a hedge fund that focuses on media and technology stocks. Jeffrey Logsdon, an analyst with Harris Nesbitt, concord with that assessment.He said that Pixars success quotient justified the price of the deal. Pixar has as yet to have a flop with its six animated movies. They have grossed more than $3. 2 billion worldwide, according to movie tracking research firm Box business Mojo. Disney, howeve r, has struggled in the computer-generated animated movie arena. Even though its most youthful CG-animated film, Chicken Little performed better than many had expected at the package office, it was not as big a hit as any of the Pixar films. Robert Iger has made no secret of the fact that he wanted to get the animated business back to where it was.Its what Disney has known for but the movies they did in-house did not do as hale as the ones they did with Pixar, said Michael Cuggino, a fund manager who owns about 100,000 shares of Disney in the Permanent Portfolio and Permanent Portfolio Aggressive Growth funds. Pixar has yet to announce what movies it is working on after Cars, however. It is believed that Pixars next film about a rat living in a fancy Parisian restaurant, tentatively titled Ratatouille may be released on 2007 and that a Toy Story 3 may be in the works as well.Jobs said during the conference call that nothing has been decided about prospective Pixar releases yet, but added that the company feels strongly about making sequels to some of its previous hits. And Iger said that announced plans for Disney-produced animated films, including the release of American Dog in 2008 and Rapunzel Unbraided in 2009, are still on track. It would have been unthinkable to speculate Disney and Pixar teaming up just a few years ago.The two companies broke off talks to extend their current distribution agreement in 2004 due to a strained relationship between Jobs and former Disney CEO Michael Eisner. But since Iger succeeded Eisner last year, he has extended an olive branch to Jobs. Disney and orchard apple tree have already announced several online programming deals during the past few months. Disney now has agreements in place to sell hit ABC crest time shows, such as Desperate Housewives and Lost, as well as content from ABC Sports and ESPN on Apples popular iTunes music and photograph store.Cuggino said the addition of Jobs, who will also become Disneys l argest individual shareholder, to Disneys board could mean that more innovative digital deals could be in the works. Jobs is a dynamic personality who knows consumer electronics. Its an opportunity to bring some youthful zippy thinking to Disneys board. Disney, like many other large media companies, has seen its stock price stagnate during the past year as investors have flocked to more speedily growing digital media firms such as Apple as well as search engines Google (Research) and Yahoo Research) But Logsdon said the acquisition of Pixar could help Disney increase r change surfaceue throughout all of its business lines. So even though some may be quibbling in the short-term about how much Disney had to spend, he thinks Disney made the right move. Its a smart strategic deal, Logsdon said. The benefit in theme parks, consumer products and cable will probably pass this deal look a lot smarter a year or two from now.