Walt Disney

and Pixar Inc.

Group 8:
Anji Sinha PGP/21/073
Ashrav Gupta PGP/21/077
Ishan Bhatt PGP/21/085
Nayamat Bal PGP/21/099
Shefali Birla PGP/21/113
 Ally or Acquire?
Factor Strategy
Factors Reason
type/intensity recommendation
Disney will be able to acquire the technology and talent
Type of synergy Reciprocal Acquisition capabilities of Pixar, while Pixar will be able to access the
marketing and distribution capabilities of Disney
There are two major set of high value resources: First is the hard
Nature of High value of soft resource which are the software Ringmaster and Marionette
and hard Equity alliances
resources developed by Pixar. The second aspect is the animation
resources
designers, who are the soft resources
Extent of Redundancies will arise out of the independent aspect of
redundant Medium Equity alliances operations for both studios, and possible talent exodus from
resources Disney. Both of these are not high intensity factors

Market uncertainty is low to medium as the only disruption is

Degree of market Low/Medium Acquisition the use of animation software. Uncertainty of payoffs is low
uncertainty
based on the previous 5 movies partnership with Pixar

The competition is high as 3D tech is gaining traction, which is

Level of High Acquisition a strong suit of Pixar. Also, it is considering deals with other
competition
companies like Sony, Warner Brothers and 20th Century Fox
 Acquisition vs Collaboration Decision Matrix
• Strategic Uncertainty: Uncertainty of the future business model is low, with barriers for both companies clearly
defined and easily overcome through acquisition (Disney requires technological support while Pixar needs marketing
and distribution capabilities)
• Dispersion of Knowledge: As the knowledge asymmetry favors Pixar, and is required by Disney for a long duration,
acquisition is a better option
• Transaction Specific Investments: Since transaction specific costs or capital expenditures are not high, an alliance can
be considered over acquisition as irrecoverable investment is low
• Behavioral Uncertainty: Inter Organizational trust is low due to cultural differences. Leadership differences also
existed in the past between Steve Jobs and Eisner, which could make a future alliance rocky as compared to
acquisition
• Persistence of Economic Synergies: High fixed costs are justified only if the economic synergies are long term, which is
achievable through acquisition
• Appropriability Regime: As the Disney and Pixar teams need to work together on the 3D technology, control over
information transfer is tough, favoring acquisition as a strategy
• Resource Endowment: Disney has financial strength to acquire Pixar
• Absorptive capacity: Disney has low absorptive capacity as it is not a learning alliance and value of the contribution
won’t change with time.
• Institutional Capital: No specific external growth strategy preferred due to this factor. The reputation of either of the
companies in the industry is an advantage for both alliance and acquisition.
Acquisition vs Collaboration Decision Matrix

As per our evaluation,

acquisition is the preferred
strategy
Financial analysis Microsoft Excel
Worksheet

Valuation NPV Exchange ratio

Current deal structure $5.6bn Minimum 1.37x

Maximum 2.25x
Negotiated deal
$7.2bn
structure Median 1.8x

• As per the current structure, if a moderate growth rate is considered, with a terminal growth rate of 6% and
projections in terms of step down method then the NPV is ~$5.6bn
• For the negotiated deal, a conservative negotiated deal with 50% revenue sharing has been considered. In this
case the NPV is ~$7.2bn. It is important to consider this NPV as Pixar is clearly not willing to work as per the
current deal. So even the 50% sharing is quite a conservative estimate
• On basis of Exhibit 11, a median has been taken on basis of the four methods of valuation. On basis of the same
an exchange ratio (Disney shares/Pixar shares) of 1.4x to 2.2x
Disney should acquire Pixar and let it retain its
DNA
Pixar’s management should retain control
• Pixar’s success is due to specialized knowledge of its employees so management should not
change
• Pixar’s senior employees should be given Disney stocks in lieu of Pixar stocks they own to ensure
they do not leave the company

Disney’s parks management should be included in Pixar movie

development
• Parks and Resorts have 2nd highest operating income at $1,178 million
• Franchises will gain from being present at parks and operational synergies can be realized

Pixar should retain it’s culture and manage Disney Studios

• Pixar should keep it’s own culture and build the same within Disney
• Creative synergies to have two specialized creative production houses – one for all ages
animation films and other to focus on adults

Software should be looked at to preserve competitive

advantage of animation
• Pixar’s propriety software’s can be used to dominate the animation industry and by controlling
proprietary rights to same one could control the industry