Group 5 | SectionA

Aman (19/064)
Dharmanshu
(19/076) Rishi
Tarkesh
(19/313)
Shubham
(19/346) Suraj

Ally or Acquire ?

Disney should acquire Pixar according to Dyre, Kale and Harbir framework

ptions
for
PIXAR
and
Disney
Renegotiate deal with

DISNEY In-house development

PIXAR Disney

Greater synergy exist between companies

May forgo profits due to lesser financial power in
negotiation
Signal succumbing to the bargaining power of Disney

PIXAR Get acquired by Disney

Will open doors for higher financial and distribution
opportunities
Synergy is high between Pixar and Disney
May lead to talent exodus leading loss of core
competency

Negotiate with other

PIXAR firms

May land up with better deal with higher returns

Synergy between new firm and Pixar is low
May not have same distribution power and revenue
generation power as compared to Disney

PIXAR Develop Capabilities

Will get maximum return from its products
Will have less dependencies on other firms for its
products
Developing capabilities is costly and time consuming

Reduction of external dependency and long term technology

security
Lack of competency and experience in developing CG
Not an immediate solution and may take time to master

DISNEY Renegotiate with Pixar

Will continue to have best in class CG competency from Pixar

Low risk option since synergy is high with Pixar
Decrease in revenue from the deal
External dependency to continue and reduction in bargaining
power

Negotiate with other

DISNEY firms

Synergy between new firm and Disney will be low

May not have same CG development capability as Pixar
Option may be cheaper

DISNEY Acquire Pixar

Long term solution and acquisition of core competency

No external dependency leading to steady growth of revenue
Synergy is high between Pixar and Disney
May lead to exodus of potential talent pool from Pixar

Disneys Perspective : Ally or

Acquire
? $mn)
Valuation of Firms (in
Pixar

Disney

Combined
Entity

VabVa + Vb

Synergy from Acquisition : Value of Combined Entity Value of Pixar

Value of Disney
= 79,120 70,666 4,862
= $ 3,592 mn
Therefore, it makes sense for Disney to acquire Pixar

Pixars Perspective : Ally or

Acquire ?
Valuation of Pixar in differernt scenarios (in $mn)

Co production
agreement continues

Acquired by
Disney

Contract negotiated
for distribution only

Value of the firm = $ 7.5 bn

From Pixars point of view, the firm should renegotiate the contract for
distribution only with Disney or some other Company

Calculations

Valuation using P/E

Earnings (as on Oct
P/E Ratio
2005)

Pixar

46

167.39

Walt Disney

17

2533

18.80

2700.39

Combined

Combined P/E is greater than the Disneys P/E. So Its EPS would fall post merger(Short
Term).
Dilutiveacquisitionsdecreaseshareholder valueand should thus be avoided, unless the
strategic value of the acquisition is expected to cause a sufficient increase in EPS in later
years.
Since CAGR of Pixar is 23% and CAGR of Disney is 18.1%, EPS of the combined entity will
increase in the later years.
Thus owing to the strategic nature of the acquisition, Disney should acquire Pixar.

Recommendation and Challenges

Recommendation

Challenges

Disney should acquire Pixar with terms that

are accommodative for Pixar

Aligning the cultural difference of Disney and

Pixar post acquisition

Disney should ensure that the basic

operations and structure of Pixar should not
change rapidly or radically

Ensuring prevalence of non-bureaucratic and

open culture of Pixar post acquisition

It should take care to retain trained CG and

technical staff of Pixar so that the core
competency of Pixar is not lost due to the deal

Dealing with Steve Jobs forceful personality in

the highly charged Disney boardroom

It should take utmost care negotiating with

the board of directors of Pixar particularly
Steve Jobs

Finding right kind of incentives and methods

to allay fears of Pixar employees to prevent
exodus

Thank You