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
