Disney Merger - Grade: 100 PDF

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Leonarda Gisone Dr. Sabino Business Law Disney Mergers and Acquisitions The Walt Disney Company was created and formed in the year 1923, when a man named Walt Disney made an agreement with M.J. Winkler Productions, a New York film distributor, through the signing of a contract. The Walt Disney company, is a diverse international family entertainment and media enterprise. Disney is mainly known and gains revenue on its media networks, parks and resorts, studio entertainment, interactive media, and its consumer products. They have parks all over the world and being that Disney has become such a popular name, a theme park was put in California. About $17 million was spent creating this theme park, later named Disneyland and it opened on July 17, 1955. Disney first came alive and had its big debut when Mickey Mouse was created. Mickey Mouth was introduced through Steamboat Willis in 1928, then later they released their first feature-length film, “Snow White and the Seven Dwarfs” which is a popular film that is still talked about today. Disney was also among the first to use television as an entertainment medium. Disney has come a long way since 1923, and gained a lot of popularity and revenue since then. Disney and Pixar: In the year 2006, Walt Disney announced that he is interested in and will be buying Pixar Studios, led and owned by Steve Jobs, for $7.4 billion. Disney and Pixar began business with each other in the year 1991, when both institutions accepted a Feature Film Agreement. In the agreement taken by both Disney and Pixar, Pixar agreed to developing the production of three computerized animated films, and Disney agreed to be accountable for the distribution of the films and ever since then they have been in business with each other. After many years of making agreements with each other, in 2006, they finally, they decided to just merge the two companies

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to create one. Disney acquiring Pixar was an upfront agreement and as part of the deal, Jobs then became a board member of Disney, and John Lasseter, the creative director at Pixar, who had previously worked for Disney, rejoined the House of Mouse being a part of Disney. Lasseter later became the chief creative officer for the company's combined animated studios and also helps oversee the design for new attractions at Disney theme parks.1 This merger of Disney and Pixar, being the first acquisition made by Disney, had a major impact on Disney today due to its strong success. Pixar Animation Studios, is an American animation film studio grounded in California and has been creating animated features and short films for over 25 years now.2 Pixar originally started off in the year 1979 as The Graphics Group, which was a part of the the Computer Division of Lucasfilm, another film company. George Lucas, owner of the group, wanted to make a new computer division so he hired the head of the computer graphics lab at NYIT, Ed Catmull in 1979.3 This group who Dr. Ed Catmull worked for, mainly worked on computer hardware that would allow traditional cell animators to work on computer graphics to create short featured films and cartoons. Later on in 1986, George Lucas sold the Graphics Group to Steve Jobs, the owner of Apple, for only $10 million. The company was renamed Pixar, after being sold to Steve Jobs. They got the name Pixar, after its original creation of the Pixar image computer which was basically the center of their company. Disney adapted this technology and used it for their films, after being acquired. Meanwhile, a Pixar employee used this system to make sample animation, which they ironically got the company’s mascot from. The mascot of Pixar, is Luxo Jr, which appears in its production logo before and after every feature film. Luxo Jr. hops in from the right, stops next to the I in PIXAR, and jumps on it until he has completely squashed it down, then looks around and angles his "head" toward the camera as the words

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'Animation Studios' appear bottom right of the logo. This logo has become a major part of Pixar, and is what is known today for their movies. During the time of the acquisition of The Walt Disney Company and Pixar Animation Studios, Disney had to weigh out the pros and the cons of mergers to so if it would benefit them or hurt them in the future. Disney wanted to merge with Pixar due to the strengths in Pixar’s computer motion pictures that they can later use to create films of their own. Disney was in the process of just creating its own computer animation films, meanwhile Pixar had already made six animated motion pictures and made billions of dollars from it, so if they merged Disney could use Pixar’s animation system and create films together. By the acquisition of Disney and Pixar, it would allow Disney to access Pixar’s exclusive technology benefiting both of them in the future while creating animations with the technology. Due to this, Disney’s revenues will increase greatly, attract a broader audience, and customers because of the new technology and material being used. Only positive effects will come out of this merger for Disney in the long run and we see that today. Also, not only will it attract new customers, but it will take out the competition, considering Pixar is the next company who also is in the industry of developing and producing computer animated movies. With Disney taking out their competition, also known as Pixar, it makes it so much easier to gain revenue and fans when they are the same company. The timing of the acquisition between Pixar and Disney was planned at a perfect time for Disney, since the company’s profitability has been decreasing steadily since the late 90s, but after this not anymore. As well as the great benefits Disney gets out of this merger, Pixar also profits from this acquisition as well. When Pixar and Disney merge, Pixar can focus on producing computer animated films without worrying about investment costs and marketing merchandise because

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Disney would handle it, due to the fact that it is what they are popular for. Disney has various resources and lines to produce merchandise. It also has a different amount of channels to place the merchandise on after being created. With this acquisition, Pixar would be able to use those resources to produce merchandise such as toys, and posters, with new movies. With producing this merchandise, it attracts more people and makes them more interested in what they are creating. Not only does this merger benefit both Disney and Pixar companies, it’s going to positively affect the owner of Pixar and Apple, Steve Jobs, with his Apple company, since there would be an amplified quantity of content, like music from new movies, that could be released through the ITunes store.4 Even though the pros outweighed the cons while Disney wanted to merge with Pixar, there was still cons present that had to still be discussed between the two companies. Many feared that this transaction would be too expensive for Disney to consume. People thought that with the rate Disney was going they would not be able to come up with the $4 billion to give to Pixar. Pixar employees also feared the possibility of losing their independence with their jobs at that moment, and might decide to leave the company following the merger because it wouldn’t be worth it for them anymore. The two companies have a very different culture considering Pixar was a relatively smaller organization with an open culture and Disney on the other hand was a huge corporation which followed a ranked management structure. They couldn’t be more opposite, but they worked around it. There was a chance that cultural clash may lead to the withdrawal of creative talent from Pixar leading to failure of the acquisition. Pixar thought that Disney would overpower and lose focus of what Pixar was truly about. Lastly, with the merger Steve Jobs, the owner of Pixar, would become Disney’s largest shareholder, which would not be okay. Disney would need to figure out a way of changing the ownership structure to handle the

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complex figure of Apple’s founder to balance out the shares among the people of the company and the current shareholders.5 The merger allowed Disney and Pixar to make full use of their financial and organizational resources with the interaction of companies and benefited them both. The merger increased Disney’s stock price and eliminated the trouble of coming to agreements regarding production and distribution fees which made the shareholder very happy about the acquisition fo Pixar Animation Studios. Financial performances improved with the growth rate of Pixar and new improved films, and other streams of revenues such as merchandising as the years went on after combing the two companies. The acquisition allowed Disney and Pixar to concentrate on individual strengths, which led to an increase in sales and the companies gaining money. Disney has strong distribution channels while Pixar has the technology and creativity to use the distribution channels. Both parties marketed its production together and get more profit combined. All in all, Disney and Pixar both benefited from the acquisition of their companies and they still gain revenue from it on a daily basis. Disney and Marvel: Walt Disney Company announced in the year 2009 that they had reached an agreement to buy Marvel Entertainment for $4 billion with a stock and cash transaction.6 Marvel Entertainment is an American publisher of comic books and related media which is very popular today due to the important of characters created who are known globally. Some of its most significant comics include Iron Man, Spider-Man, X-Men, Captain America and Fantastic Four. With this merger it pairs a comic book publishing studio, that just recently began to produce its own movies, Marvel, with one of the largest international media companies in the world, which is Disney.

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This merger was finalized hours after shareholders got to vote, giving Disney the full ownership of Marvel Entertainment in 2009. Many believed that adding Marvel to Disney’s selection of brands provides significant opportunities for long-term growth and success, but others disagreed with that. With this deal, Disney acquired ownership of all of Marvel, which included more than 5,000 characters that have created already at that point in time.7 A lot of negotiating went into the process of this merger, but they finally came to an agreement in 2009, that the Marvel shareholders would receive $30 per share, in cash. Also, along with the $30, they will also receive 0.745 Disney shares for each of the Marvel shares that they have already owned, which they were all happy and satisfied with at the time. After the news broke out that the deal that was going to take place, Disney’s stock trade slightly went down which was shocking. This had to do with the fact that Disney was going to be issuing shares in order for them to afford and pay for part of the acquisition and it scared the shareholding causing them to sell their shares. This really alarmed the shareholders of Disney so in result, they started to sell their shares of the stock, making the stock price go down significantly. Disney’s CFO, or their Chief Finical officer, who is in charge of and responsible for the financial shares of a corporation, reassured investors not to worry about the share prices. Within the year of the merger, Disney purchased back as many shares as they sold as a part of the deal.8 At the moment of the acquisition, Marvel’s film industry’s biggest issue, was the access to money while creating films. Marvel had tried to pay for its films with about $525 million in financing, but it just was not enough to cut it. Peter Cuneo, Marvel’s vice chairman, told investors that the company would have to self-finance a third of each film to get around that requirement in order to be able to produce the film the way they wanted to. With Disney, this

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would be a much easier to access. Disney had the resources and capital that Marvel could sue to make outstanding films to bring in even more capital. Disney was aware that acquiring Marvel makes them a partner with Paramount Pictures, Sony Pictures Entertainment and 20th Century Fox, all of which have long-term deals to make movies based on superhero characters.9 Being partners with these big companies just guaranteed Disney that they would be making money on future films that have yet to be created. Through this acquisition of Marvel, it broadened the audiences to a wider range. Disney has always been similar to Marvel, so it was relatively easy to absorb Marvel into its realm. After the acquisition, Marvel's management team remained in place and still had creative control over future efforts involving Marvel characters, but now with the Disney platform and infrastructure it gave Marvel new opportunities to enhance and broaden its brand. For example, Disney is known for its fairytales and princesses, which would mainly attract young girls, but Marvel’s superheroes will give them powerful franchises, which appeals to younger boys. This would make Disney gain a whole new audience bringing in more revenue and benefiting them greatly. Disney is known to also be popular with children, due to the fact that they are good at marketing to the younger audience. This is important because even though, kids love movies like “SpiderMan” and “X-Men” they’re not reading the comics that were made from Marvel. Most Marvel comics aren’t made for young readers, but Disney offers Marvel an opportunity to bring in the younger audience and gives them the change to truly reach out to them in a way that they will understand. .10 Disney and Lucasfilm: Lucasfilm is an entertainment service company that specializes in visual effects and sounds across multiple fields in the movie business. Popular franchises that were created by

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Lucasfilm and are known by the public audience today are Star Wars and Indiana Jones.11 Lucasfilm was founded by a filmmaker names George Lucas in 1971, and merged with The Walt Disney company in the year 2012. Disney reached out to the creator and founder of Lucasfilm in order to merge their similar companies with each other. This all occurred after Robert Iger, who is the chief executive officer of Walt Disney, watched all six of the Star Wars films, and took notes while watching them. By doing this Iger knew and realized that Lucasfilm had more material to be released for the Star Wars movies, considering there is supposed to be nine. This motivated and encouraged Disney to buy Lucasfilm and be part of the creation of many more popular movies.12 On October 20, 2012, Disney announced that they were going to acquire Lucasfilm for $4.05 billion. With this $4.05 billion, half of it was going to be bought with cash and half bought in shares of the Disney stock. In result, Lucasfilm received 40 million Disney shares from the deal, and then became the second-largest non-institutional shareholder of Disney, next to owner of Pixar, Steve Jobs.13 This buyout was Disney’s fourth largest deal ever, out spending the price spent for the acquisition of Marvel and Pixar causing a big deal in the history of Walt Disney Studios. Usually when a huge purchase like this takes place, the stock of a company often takes a huge plummet and loses majority of its money, but in only four days after the buying of Lucasfilm the Disney stock was rising quickly again. Disney immediately started making money as a result of the acquisition of Lucasfilm, proving that this investment will continue to pay off in the years to come. The $4 billion that Disney spent in the buying of Lucasfilm, didn’t affect them at all. With all the money that Disney makes on a daily basis, spending the $ billion on this didn’t really cause much of a problem with money. The Disney stock has nearly doubled ever since the

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acquisition of the Star Wars franchise with Lucasfilm. After the merger, Lucasfilm used Disney’s resources to their full advantage. They used many of their resources, but mainly its major line of merchandising products. More than 100 new Star Wars toys were created and it caused a major cultural phenomenon. The toy sales reached about $2 billion in retail sales, and $1 billion in wholesales, and Disney gets a fifteen percent rate, which is a lot of money going into the Disney company. Not only is the merchandise bringing in money for the companies, but also the ticket sales for the movies being released bring in a lot of the revenue as well. When Jurassic World was released, during its opening week it brought in about $209 million in just a week of sales.14 Also, under the deal, Disney acquired the ownership of cutting-edge entertainment that kept audiences attracted to these films for several years. After the acquisition, the current Co- chairman of Lucasfilm, Kathleen Kennedy, became the President of Lucasfilm, and reports to Walt Disney Studios Chairman Alan Horn. She became the brand manager for Star Wars and works directly with Disney’s global lines of businesses to help build franchisees. Along with Kathleen Kennedy, George Lucas, the owner of Lucasfilm will serve as a creative consultant. This shows that everyone got to keep their jobs and still be a part of what they once were, showing that everyone in the end benefited from the acquisition. The Lucasfilm acquisition follows Walt Disney’s successful acquisitions of Pixar and Marvel, which shows how Disney was able to create stories and unique characters with the application of complex technology and distribution on a global foundation. Disney acquired the new and modern technology brought forth by Lucasfilm and used it to the best of their abilities creating films that attracted a broader audience. This helped Disney serve their consumers and valued customers with a different variety of content and to create lasting value for the shareholders of the company.

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Disney Now: The Walt Disney Company, has been a success ever since it was created in the year 1923 considering its stock has gone up 500% since the year 2009. After many years of negotiating and making deal, Disney now owns five movie brands. These movie brands include Lucasfilm, Marvel, Pixar, Disney Animation, and Walt Disney Pictures (family films).15 Disney is very successful in promoting these movie brands through theme parks, movies, and toys. Majority of Disney’s revenue comes from its Media Networks, such as ABC, Disney Channel, and large stakes in A&E Networks and ESPN.16 At the moment, Disney’s stocks are currently at 92.83 US dollars and sales have grown greatly in the last quarter. The company has delivered a strong growth in the past few years and will continue to grow and gain money. The Long term revenue growth has been strong within a 5 year compounded annual growth of 6.8%. The Walt Disney stock currently trades at a price to earnings ratio of 15.9. We rate this as a positive, compared to the industry average of 19.4. The stock changes on a daily basis in which affects Disney daily.17 As mentioned before, Robert A. Iger is the Chairman and Chief Executive Officer of The Walt Disney Company. As the CEO, Iger is responsible for generating the best creative content, such as films, possible using the latest technology and expanding the content into markets all around the world. Iger earned a total compensation of $46.5 million while working as CEO for Disney, and out of that $46.5 million, he earned $2,500,000 out of salary. Under the control of Robert Iger, Disney reported record revenue, net income, and earning per share for five years in a row. Disney’s history of unforgettable stories and movies that everyone grew up watching was built by Mr. Iger.18 With all this, theme parks were created inspired by these famous characters. Over the years many theme parks have been built in areas such as Florida, Japan, France, Hong

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Kong, China, California, and even in Hawaii. All things being considered, this shows how Disney has effected each and every one of us today and how The Walt Disney Company is growing on a daily basis currently. Even though Disney was founded and created so long ago, it still has a ma...