Pixar, co-founded by Steve Jobs, left, and Disney, run by Robert A. Iger.

HISTORICAL BACKGROUND

The Walt Disney Company was founded on October 16th 1923 by brothers Walt and Roy Disney.

It is one of the largest media and entertainment corporations in the world.

It’s the owner of 11 theme parks and several television networks, including the American Broadcasting Company (ABC).

Disney started making films in the

1930’s.

Some of their first films were Snow

White, Bambi and Pinocchio.

A lot of their earlier films were

animated adaptations of children’s

fairytales.

By: Vivek Patel

HISTORICAL BACKGROUND

Pixar Animation Studios was started by John Lasseter & George Lucas

Pixar was initially a computer graphics division owned by film maker George Lucas known as Lucas film limited.

In 1986, Steve Jobs purchased the computer graphics division of Lucas Film Ltd. for $10 million and established it as an independent company named Pixar, co-founded with Dr. Edwin E. Catmull.

On November 22, 1995, Pixar Animation

Studios forever impacted the future of

filmmaking with the release of its first

feature film, Toy Story. The film went on to

become the highest grossing film of 1995

with $362 million.

THE RATIONALE

Disney -• The acquisition gave Disney ownership of the world’s most famous

computer animation studio and its talent.

• The timing was also perfect for Disney, as its own animation films were

failing.

• The deal brought the technology company Apple closer to Disney.

• The decrease in competition is another motive for Disney

Pixar -

• For Pixar it was a good move to face competitors like DreamWorks &

20th century fox.

• The deal gave Apple iTunes more video content to offer.

• Pixar can focus on its core strengths of producing the computer

animation and does not have to invest in production line for making

merchandise and home entertainment.

THE MERGER

Pursuant to the terms of the merger agreement, Lux Acquisition Corp., a

wholly-owned subsidiary of Disney, will merge with and into Pixar, and

Pixar will survive and continue as a wholly-owned subsidiary of Disney.

On January 24, 2006, Pixar Animation Studios and The Walt Disney

Company entered into a merger agreement. The deal was

consummated on May 5, 2006 for a purchase price of $7.4 billion.

1. Pixar's major features have been made with Walt Disney Pictures.

2. In 1997, after the release of Toy Story, a 10-year, 5-picture deal was

signed, evenly splitting production costs and profits on subsequent

movies. Disney alone retained rights to the films and characters. In

addition, Disney collects 10 to 15 percent of each film's revenue as a

distribution fee.

3. Pixar and Disney have had ongoing disagreements since the production of

Toy Story 2 (1999). Originally intended as a straight-to-video release (and

thus not part of Pixar's five picture deal), the film was upgraded to a

theatrical release during production. Pixar demanded that the film then be

counted toward the five picture agreement, but Disney refused. There

were talks of Pixar searching for new distributors.

4. On January 24, 2006, Disney announced that it had agreed to buy Pixar

for approximately $7.4 billion.

5. Disney was offering 2.3 shares of its stock for each Pixar share. That's a

3.8% premium on Pixar's closing price of $57.57 (2006).

6. The transaction would catapult Steve Jobs, who was the majority

shareholder of Pixar with 51%, to Disney's largest individual shareholder

with 7% and a new seat on its board of directors.

To purchase Pixar, Disney exchanged 2.3 shares of its common stock for

each share of Pixar common stock, resulting in the issuance of 279

million shares of Disney and converted previously issued vested and

unvested Pixar equity based awards into approx. 45 million Disney

equity based awards.

The acquisition purchase price was $7.4 billion in an all-stock deal.($6.4

billion of stock and Pixar’s cash & investments of approx. $1.0 billion).

The value of the stock issued was calculated based on the market value of

the company’s common stock using the average stock price for the five

day period beginning two days before the acquisition announcement date

on Jan 24th, 2006.

The fair value of the vested equity based awards issued at the Closing

Date was estimated using the Black-Scholes option pricing model .

THE METHOD

THE ANALYSTS OPINION

Mr. Iger said: "The addition of Pixar significantly enhances Disney

animation, which is a critical creative engine for driving growth across our

businesses."

Doug Mitchelson at Deutsche Bank Securities called the move a "bold foray”.

"In a way, it appears that Iger has returned Disney to its roots with this deal as

the creative heart of the company will once again be a highly successful

animation unit,”.

Jessica Reif Cohen of Merrill Lynch calls the combination "a near perfect

strategic fit," adding that the Disney's brand "meshes well" with Pixar's

content.

However, analysts said that the real value to Disney was the talent the deal

would bring in-house, especially Pixar executive vice-president John

Lasseter, the man credited as being the creative driving force at the firm.

1. In terms of the revenue, stockholders got the higher share price from merging

between two parties. Shares of Pixar gained nearly 3% from after-hours trading

and Disney’s stock gained about 1.8% in regular trading.

2. In terms of human resource, the team up of two big animation production

companies enabled in better human resource. They could exchange the valuable

human resource between Disney and Pixar, which enabled them to produce top

hit motion pictures.

3. Over the past three years Disney, which ranked 67th on the Fortune 500 last

year, cruised to the head of the media pack in terms of both its stock performance

and its return on invested capital.

4. Under Iger, Disney became the world's largest media conglomerate by market

value, worth around $40 billion.

5. “Ratatouille,” “Wall-E” and “Up” have all garnered critical praise . Then there’s

the “Toy Story” franchise. Part One – the first result of a distribution deal Disney

and Pixar signed early in their courtship – showed the world what their

partnership could do.

NEW YORK (CNNMoney.com) (2006)– The magic is back for shareholders

of Walt Disney. Disney's stock is up nearly 20 percent so far this

year, making it the second-best performer in the Dow Jones Industrial

Average.

How has Disney done it? In a word: Pixar.

The Pixar acquisition also won over many investors because of the Jobs and

Apple effect.