While the transaction is expensive and outside of Disney's expertise, the company can use Lucasfilm to expand a disparate set of media and entertainment businesses, as other conglomerates like Time Warner (TWX - Get Report) and News Corp. (NWSA - Get Report) rein in their operations.
In buying Lucasfilm -- owned outright by founder George Lucas -- Disney is doubling down on a strategy to use its media empire with over $40 billion in annual revenue to revive growth from the businesses it acquires. Such expectations of synergy have failed other media giants.
Along with Lucasfilm's collection of Star Wars movies, Disney will acquire the company's Industrial Light & Magic graphics business and Skywalker Sound unit. The key to the deal is that Disney expects it can find far more value in the businesses founder George Lucas created over his near-40-year ownership than what Lucasfilm could do on its own."Adding Lucasfilm to Disney's portfolio of world-class brands significantly enhances the company's ability to serve consumers with a broad variety of the world's highest-quality content and to create additional long-term value for our shareholders," Disney said in a statement released on Tuesday afternoon. The Burbank, Calif-based company said it will pay about $2 billion in cash for Lucasfilm and the remainder in stock, issuing 40 million shares. Previously, Disney has been criticized for paying high prices to buy studios, only for the company to far surpass expectations as blockbuster movies rolled in, and revenue flowed to ancillary resorts and merchandising businesses. For instance, Disney was panned for paying billions of dollars for Pixar and Marvel in 2006 and 2009, respectively, only to launch blockbuster pictures like Cars and The Avengers, which helped push the company to all-time stock highs above $50 earlier in 2012. Disney Chief Executive Officer Robert Iger, who executed the Pixar and Marvel acquisitions, is betting his M&A magic won't run dry on a third multibillion dollar studio deal. On Wednesday, Disney said it plans to unveil a seventh Star Wars movie in 2015. "The Lucasfilm acquisition follows Disney's very successful acquisitions of Pixar and Marvel, which demonstrated the company's unique ability to fully develop and expand the financial potential of high-quality creative content with compelling characters and storytelling through the application of innovative technology and multiplatform distribution on a truly global basis to create maximum value," Disney said in its press release. There's good reason to believe Iger and Disney will be successful in breathing new life into Lucasfilm as George Lucas hands over the keys to his Star Wars and movie-animation empire. In a June article, TheStreet spoke to executives of former Disney acquisition targets to find out why it has been so successful in buying up studios for billions, while other media giants have fared poorly on M&A. The consensus is that Disney successfully focuses on acquiring high-grade intellectual property like Pixar and Marvel characters, which can be promoted throughout the company's set of studio, resort and theme-park assets in the U.S. and abroad. In experiencing Marvel's evolution from a bankrupt comic-book maker into a factory for blockbuster movies like Iron Man and The Avengers, Peter Cuneo, the company's former chief executive, told TheStreet that studio M&A rests on intellectual property like characters and technology, two areas where Disney's been a scrupulous buyer.