Disney Buys Pixar for $7.4 Billion; Jobs on Disney Board [Update]

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The Walt Disney Company announced Tuesday the acquisition of Pixar, bringing weeks of speculation to a close. In an all-stock transaction, Disney will issue 2.3 shares for every share of Pixar in a deal being valued at US$7.4 billion. Apple and Pixar CEO Steve Jobs, who owns some 60% of Pixar, will be given a seat on Disneyis board of directors.

Pixar president Ed Catmull will be the president of the newly formed Pixar and Disney animation studios, and creative mastermind John Lasseter will be the Chief Creative Officer of the animation studios.

"Disney and Pixar can now collaborate without the barriers that come from two different companies with two different sets of shareholders," said Steve Jobs in a statement. "Now, everyone can focus on what is most important, creating innovative stories, characters and films that delight millions of people around the world."

Roy E. Disney, the nephew of Walt Disney and the last Disney family member who was on the companyis board of directors issued his own statement after the deal was announced:

"Animation has always been the heart and soul of the Walt Disney Company and it is wonderful to see Bob Iger and the company embrace that heritage by bringing the outstanding animation talent of the Pixar team back into the fold. This clearly solidifies the Walt Disney Companyis position as the dominant leader in motion picture animation and we applaud and support Bob Igeris vision."

Mr. Disney left the board in 2004 in a public protest about the way he felt then-CEO Michael Eisner was running the company. He then led an unsuccessful shareholder revolt to oust Mr. Eisner, though Mr. Eisner eventually announced his retirement.

Background

Relations between Disney and Pixar soured under Michael Eisner, culminating in an announcement from Pixar that it was seeking a new distribution partner, and public sniping from both CEOs as recently as February of 2005.

Since then, Bob Iger has replaced Mr. Eisner as CEO, and mending the fences with Pixar appears to have been high on the priority list. The lionis share of Disneyis animation profits for most of the last ten-plus years has come from Pixar films, and not from films produced in-house at Disney.

In October of 2005, Mr. Iger participated in a media event with Steve Jobs in his role as CEO of Apple Computer announcing a content deal for the iTunes Music Store. Foreshadowing todayis news, Mr. Iger told the audience of reporters that he was there to announce a deal Apple, "Not with Pixar, but with Apple. Maybe we can do that another time."

Prime pieces

John Lasseter has long been considered the crown jewel of Pixaris creative team, while Ed Catmull has an excellent reputation as an operations executive.

Mr. Lasseter in particular has long been an object of Disneyis desire, even in the days of Michael Eisner, and his move to being creative director was spelled out in Disneyis press release, something intended largely for industry watchers. The realm of creativity has been the thing for which Disney has been most criticized by those watchers in recent years.

Profits

Reuters reported late on Tuesday that Disney expects Pixar to have a direct (i.e. additional) contribution to Disneyis bottom line by 2008. CFO Tom Staggs told analysts after the deal was announced that during 2006 and 2007, the acquisition would likely be dilutive to earnings in 2006 and 2007 as both companies manage the transition.

Disney closed at $25.99 per share, a gain of 47 cents (+1.84%). Pixar closed at $57.57 per share, a loss of 70 cents (-1.2%)

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