Video: Disney deal

updated 1/25/2006 11:13:23 AM ET 2006-01-25T16:13:23

The Walt Disney Co. said Tuesday it is buying longtime partner Pixar Animation Studios Inc. for $7.4 billion in stock in a deal that could restore Disney’s clout in animation while vaulting Pixar CEO Steve Jobs into a powerful role at the media conglomerate.

Disney’s purchase of the maker of the blockbuster films “Toy Story” and “Finding Nemo” would make Jobs Disney’s largest shareholder. Jobs, who owns more than half of Pixar’s shares and also heads Apple Computer Inc., will become a Disney director.

“With this transaction, we welcome and embrace Pixar’s unique culture, which for two decades, has fostered some of the most innovative and successful films in history,” Disney Chief Executive Robert A. Iger said in a statement.

Disney has co-financed and distributed Pixar’s animated films for the past 12 years, splitting the profits. That deal expires in June after Pixar delivers “Cars,” and it had once appeared the companies would not renew it amid friction between Jobs and former Disney CEO Michael Eisner.

But the talks revived under Iger, who became Disney CEO last October. Disney, the theme park owner that also owns the ABC and ESPN TV networks, and Pixar had discussed a new relationship for months.

Pixar Executive Vice President John Lasseter will become chief creative officer of the animation studios and principal creative adviser at Walt Disney Imagineering, which designs and builds the company’s theme parks.

Lasseter began his career as a Disney animator and is the creative force behind Pixar’s films. He will report directly to Iger.

Pixar President Ed Catmull will serve as president of the combined Pixar and Disney animation studios, reporting to Iger and Dick Cook, chairman of The Walt Disney Studios.

The two companies will remain separate, with Pixar keeping its brand name and headquarters in Emeryville, near San Francisco. Maintaining Pixar’s unique creative character was a priority in the talks, executives said.

“Most of the time that Bob and I have spent talking about this hasn’t been about economics, it’s been about preserving the Pixar culture because we all know that that’s the thing that is going to determine the success here in the long run,” Jobs said on a conference call with analysts.

Under the deal, Burbank-based Disney said it will issue 2.3 shares for each share of Pixar stock. At Tuesday’s closing price of $25.99 for Disney, Pixar shareholders would get stock worth $59.78, a 4 percent premium over Pixar’s closing price of $57.57. The deal was announced after the markets closed for the day. Pixar gained 2.5 percent to $59 in after-hours trading, while Disney fell 14 cents.

Disney said the deal would lower earnings over the next two years, but that the deal would add to earnings by 2008.

“It’s something Disney had to do,” said Harold Vogel, a media analyst with Vogel Capital Management in New York. “It’s good for both companies.”

The deal received the blessing of Roy E. Disney, nephew of company founder Walt Disney and a former board member who once also oversaw animation at the company.

Roy Disney and former board member Stanley Gold led a shareholder revolt against the company in part over what they saw as a deterioration of the relationship between Pixar and Disney under the reign of Eisner.

“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,” Roy Disney said in a statement.

With Pixar, Disney gains a company that has produced a long-running string of animated blockbusters. Iger wants to strengthen Disney’s animated features, the hallmark of the company since its founding and a steady source of characters for Disney’s theme parks and other units.

Pixar has served as Disney’s de facto animation unit for a decade. Two Pixar movies, “Finding Nemo” and “The Incredibles,” have won Academy Awards for best animated feature film.

Pixar films also have been a financial windfall for Disney, which receives 60 percent of the profits.

By contrast, Disney’s own animation unit has struggled, producing some modest successes, such as 2002’s “Lilo & Stitch,” and many flops, including “Treasure Planet” and “Home on the Range.”

Its first fully computer-animated effort, “Chicken Little,” grossed more than $100 million domestically since its release last year and will likely be profitable. But that figure falls well short of the more than $200 million domestic gross of 2004’s “The Incredibles.”

Pixar also benefits from the deal by cashing in at the top of its game, before it produces the inevitable box office disappointment, Vogel said.

“Eventually, we know that after six huge hits, there would be a film that would come along that would be less good than what they had,” Vogel said. “This was a good time to broaden the horizon and the canvas. I think Steve Jobs is very smart about knowing when to hold them and when to fold.”

With Jobs, Disney also tightens its link with Apple Computer, the innovative technology company behind music and video iPods.

Jobs could help Iger push his plans to marry films, TV shows, video games and other content to computers, iPods, handheld game consoles and even cell phones.

Disney and Pixar had been discussing an extension of their distribution deal since early 2003. Last year, analysts said striking that agreement was Iger’s top priority.

The talks stalled in 2004 after Pixar demanded that it own 100 percent of all future films and pay Disney a straight distribution fee, similar to the deal “Star Wars” creator George Lucas had with Twentieth Century Fox.

Pixar also wanted ownership of all the films already produced as well as two that were remaining under the existing agreement at the time.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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