To Acquire or

Not to Acquire ?

Group 2:
Azeera Azeez

Garima Singla

Navam Gupta

Parth Patel

Rahul Yadav

What all options do they have?

Pros

Option 1

Cons

In-house skill
development will
result in less
dependence on other
studios
Guarantee for
availability of
resources in future
and hence consistent
Pros
returns
Good option to
progress in short
term at least
Might get a better
price in comparison
to what was offered
by pixar

Reenginee
r Disney
Animation
to better
compete
with Pixar

Not a good solution for

short term as developing
this capability will take lot
of time

Option 2

Cons

The quality provided by

Strike a
distributio
another studio might not
n deal with
be as good as that of Pixar
Difficult to reap benefits
another
animation
as relationship needs to
studio
be initiated from the
scratch

What all options do they have?

Pros

Option 3

No deal with any new

studio, hence same
quality is ensured
The production costs
also gets divided

Negotiate
The dependence on Pixar
a new
continues
distributio Revenue per movie
n deal with
decreases
Risk of losing the right of
Pixar
sequels to Pixar will
increase

Pros

Option 4

Ownership both of
Acquire
the movies and the
Pixar
sequels
Synergies will lead to
increase in revenues

Cons

Cons
Expensive
Dilution of Disneys P/E
Difficulty in achieving
cultural integration
Potential loss of talented
Pixar employees

Choosing Between Acquisitions

and Alliances
Factor

Alternativ
e

Relevant
Strategy

Comments

1) Types of
Synergy

Modular

Non-Equity
Alliance

Sequential

Equity Alliance

Reciprocal

Acquisition

Factor

Alternativ
e

Relevant
Strategy

The firms are driving

sequential synergy as Pixar
makes movies and Disneys
market this movies. Pixar is
excellent at production and
technology. Whereas Disney
can leverage its existing
sales and marketing
Comments
expertise.

2) Nature
of
Resources

Low

Non-Equity
Alliance

Low/Mediu
m

Acquisition

(Relative value of soft to hard

High

Equity Alliance

Pixar strength lies in it

strong production team and
flexible work environment.
They also hold proprietary
technology for production
and animation in CG.

Choosing Between Acquisitions

and Alliances
Factor

Alternativ
e

Relevant
Strategy

Comments

3) Extent
of
Redundant
Resources
Factor

Low

Non-Equity
Alliance

Medium

Equity Alliance

High

Acquisition

Creative Teams are common

and Disney already uses
Pixars technology. The CG
teams will also overlap along
with production teams. There
is a medium overlap in terms
of soft resources.

Alternativ
e

Relevant
Strategy

Comments

4) Degree
of Market
Uncertaint
y

Low

Non-Equity
Alliance

Low/Mediu
m

Acquisition

High

Equity Alliance

Sequels has generated 30%90% extra revenues over the

originals, and 65 sequels
were predicted from existing
originals. With increased
penetration of technology,
shortage for technical

Choosing Between Acquisitions

and Alliances
Factor

Alternativ
e

Relevant
Strategy

Comments

5) Level of
Competitio
n

Low

Non-Equity
Alliance

Medium

Equity Alliance

High

Acquisition

Exhibit 1 shows an average

performance of Disney and
dreams works as
comparable, while lower in
case of Warner Bros and Fox.

(Degree of competition

for resources)

Our Suggestion :

Equity Alliance

Impact of Reduced Distribution

Fees on Pixars Revenue

International Box Office

Theatrical Net
Marketing and Distibution Fees
Distibution Fees
Net Revenue
Pixar's Share
Production House's Share

Net Difference in
Revenue is:

$16 Million

Home Video Sales (and Rentals)

Costs
Net
Marketing and Distribution Fees
Distribution Fees
Net Revenue
Pixar's Share
Production House's Share

Total Pixar Revenue

Distribution Fees (12.5%) Distribution Fees (7.0%)

500
500
239
239
(100)
(100)
(29.875)
(16.73)
109.125
122.27
54.5625
61.135
54.5625
61.135
500
(150)
350
(100)
(43.75)
206.25
103.125
103.125

157.6875

500
(150)
350
(100)
(24.5)
225.5
112.75
112.75

173.885

(Assumption: 1) The movie will gross $ 500 MN in both box office and Home Video Rental Sales , 2) The revenue Split is assumed at 50-50.

Thank you