Pixar and Walt Disney Merger

NEW YORK Mickey Mouse and Nemo are straightaway corporal cousins. Walt Disney has announced that it is buying Pixar, the animated studio led by apple head Steve Jobs, in a exact worth $7. 4 billion. Speculation somewhat a deal being imminent raged on Wall Street for the past few weeks. Disney has released all of Pixars films so far, but the companies current distribution deal was set to expire following the release of this summers Cars. The merger brings together Disneys historic franchise of animated characters, such as Mickey, Minnie Mouse and Donald Duck, with Pixars stable of car excessivelyn hits, including the dickens Toy Story films, Finding Nemo and The Incredibles. Disney and Pixar pile now collaborate without the barriers that come from twain different companies with twain different sets of shareholders, said Jobs in a statement. Now, everyone can focus on what is almost important, creating progressive stories, characters and films that delight millions of peop le around the world. As part of the deal, Jobs will become a board member of Disney, the companies said.And bathroom Lasseter, the highly respected creative director at Pixar who had previously worked for Disney, will rejoin the House of Mouse as chief creative officer for the comp eachs have animated studios and will as well help oversee the design for new attractions at Disney theme parks. The addition of Pixar significantly enhances Disney animation, which is a critical creative locomotive for driving growth across our businesses, said Disney chief executive officer Robert Iger in a written statement. During a conference call with analysts Tuesday, Iger said that acquisition discussions had been going on for the past several months.Jobs added that after a lot of soul searching, he came to the conclusion that it made the most sense for Pixar to align itself with Disney permanently instead of stressful to distribute films on its own or sign with an some other movie studio par tner. According to the terms of the deal, Disney (Research) will issue 2. 3 shares for each Pixar share. establish on Tuesdays closing prices, that values Pixar at $59. 78 a share, about a 4 percent premium to Pixars current stock price. Shares of Pixar (Research) fell somewhat in regular trading on the Nasdaq Tuesday but gained nearly 3 percent in after-hours trading.The stock has surged much than 10 percent so far this year on takeover speculation. Disneys stock gained 1. 8 percent in regular trading on the New York Stock Exchange and was apartment after-hours. Prior to the deals announcement, some Wall Street observers had speculated that Disney may be paying too much for Pixar. A source tells FORTUNE that some Disney board members also thought the price was too high. To that end, Disney chief financial officer Thomas Staggs said during the conference call that the deal would reduce Disneys earnings slightly in fiscal 2006, which ends this September, as well as fiscal 2007.He added though that Pixar should add to earnings by fiscal 2008 and that Disney was still on track to post annual double-digit percentage gains in earnings through 2008. But one hedge fund manager said that the risk of Disney losing Pixar was too great. The question isnt did Disney pay too much but how expensive would it have been for Disney if Pixar fell into someone elses hands, said Barry Ritholtz, chief investment officer with Ritholtz Capital Partners, a hedge fund that focuses on media and technology stocks. Jeffrey Logsdon, an analyst with Harris Nesbitt, agreed with that assessment.He said that Pixars success quotient justified the price of the deal. Pixar has yet to have a flop with its six animated movies. They have grossed more than $3. 2 billion worldwide, according to movie tracking research firm Box Office Mojo. Disney, however, has struggled in the computer-generated animated movie arena. Even though its most recent CG-animated film, Chicken Little performed better tha n many had expected at the box office, it was not as big a hit as any of the Pixar films. Robert Iger has made no secret of the fact that he wanted to get the animated business back to where it was.Its what Disney has known for but the movies they did in-house did not do as well as the ones they did with Pixar, said Michael Cuggino, a fund manager who owns about 100,000 shares of Disney in the Permanent Portfolio and Permanent Portfolio Aggressive Growth funds. Pixar has yet to announce what movies it is work on after Cars, however. It is believed that Pixars next film about a rat living in a fancy Parisian restaurant, tentatively titled Ratatouille may be released on 2007 and that a Toy Story 3 may be in the works as well.Jobs said during the conference call that vigor has been decided about future Pixar releases yet, but added that the company feels strongly about making sequels to some of its previous hits. And Iger said that announced plans for Disney-produced animated films, including the release of American Dog in 2008 and Rapunzel Unbraided in 2009, are still on track. It would have been unthinkable to imagine Disney and Pixar teaming up just a few years ago.The two companies broke off talks to extend their current distribution agreement in 2004 due to a strained relationship between Jobs and former Disney CEO Michael Eisner. But since Iger succeeded Eisner last year, he has extended an olive branch to Jobs. Disney and Apple have already announced several online programming deals during the past few months. Disney now has agreements in place to sell hit ABC prime time shows, such as Desperate Housewives and Lost, as well as meaning from ABC Sports and ESPN on Apples popular iTunes music and video store.Cuggino said the addition of Jobs, who will also become Disneys largest individual shareholder, to Disneys board could mean that more innovative digital deals could be in the works. Jobs is a dynamic personality who knows consumer electronics. Its an o pportunity to bring some youthful energetic thinking to Disneys board. Disney, like many other large media companies, has seen its stock price stagnate during the past year as investors have flocked to more rapidly growing digital media firms such as Apple as well as search engines Google (Research) and Yahoo Research) But Logsdon said the acquisition of Pixar could help Disney increase revenue throughout all of its business lines. So even though some may be quibbling in the short-term about how much Disney had to spend, he thinks Disney made the right move. Its a smart strategical deal, Logsdon said. The benefit in theme parks, consumer products and cable will probably make this deal look a lot smarter a year or two from now.