The Disney and Pixar Merger Deal

Disney and Pixar
The acquisition of Pixar by Disney in 2006 is an example of vertical merger, which is best described as a merger that occurs between two firms that work at separate and distinct stages of the production process. By merging operations, the two firms become one and their oversight of the production process is made that much more complete. Prior to the merger, Pixar produced films and Disney released them, marketed them, and so on. After the merger, the entire process would be overseen by Disney with Pixar leaders still playing a fundamental role in the creative development phases of production (Jain, 2013). As Debruge (2016) notes, however, the merger was more of a bailout for Disney, whose animated studio had floundered ever since Pixar’s hit Toy Story took animation and audiences in a whole new direction. Disney thus wanted to keep the firms separate while retaining ownership of Pixar because it did not want it to seem to stakeholders that Pixar had saved Disney animations—when in reality that is exactly what happened.
However, Debruge (2016) points out that there were immediate clashes as Pixar’s heads—the “brain trust” of Lasseter, Docter, Stanton and Ranft—wanted to retain creative control of Pixar and its resources. When Disney came under deadline issues with a feature it was working on, it sought Pixar’s resources and, in spite of owning Pixar, Disney was rebuffed by the brain trust until Disney promised to release the film as a Disney—rather than as a Pixar brand—animated film. The Pixar brand was important to the “brain trust” and they did not want to release features developed by Disney that had their brand attached to it. In this manner, the merger has not been a full vertical integration in the traditional sense. The Pixar brand is still very much valued by both firms and the brain trust team will provide resources to Disney when it requests them but it will not attach its brand name to any feature that is not developed completely in-house at Pixar studios—in spite of the fact that Disney does now own Pixar. It may be a strange merger, but that is the way it has gone and it suits both camps. Disney benefits from the Pixar brand’s success and Pixar is given complete creative control over its products with backing from Disney.
Disney purchased Pixar for $7.4 billion and offered 2.3 shares of its stock for each share of Pixar stock, which put a 3.8% premium on Pixar’s stock, which closed at $57.57 (Jain, 2013). Thus a combination of cash and stock was used to conduct the acquisition, and it is primarily an asset acquisition, as Disney has obtained the Pixar library and future products.
The benefits of the merger for Disney, according to DeBruge and Jain are enormous. The idea was that Disney would be able to leverage the Pixar team’s creative talents and products to enhance its own portfolio. It is the same idea that Disney has taken with Lucas Films except that in the latter case, Disney has had far more input in the creative and development phases of the Lucas Films projects than it has in the Pixar phases of development. This may be one reason many fans have disliked the new Disney-produced Star Wars films and why many fans of Toy Story still enjoy the Pixar films that are produced under Disney. Pixar has retained creative control.
The only drawback, if there could be said to be one, is that once the brain trust goes at Pixar, Disney will be left to run Pixar on its own and it will be the same old sad story of Disney having no talent to produce creative films anymore—which has been made all too clear with its Lucas Films adventure.
References
Debruge, P. (2016). Disney’s Pixar Acquisition: Bob Iger’s Bold Move That Reanimated a Studio. Retrieved from https://variety.com/2016/film/features/disney-pixar-acquisition-bob-iger-john-lasseter-1201923719/
Jain, P. (2013). The Disney-Pixar merger. Retrieved from https://qrius.com/disney-pixar-merger/