Pixar Perfect at Disney

Steve Jobs will join the board in a $7.4 billion linkup.
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Bob Iger left no doubt Tuesday that change is the order of the day at

Disney

(DIS) - Get Report

.

With Tuesday's $7.4 billion deal for

Pixar

(PIXR)

, Iger not only makes a big bet on Steve Jobs and his red-hot animated movie studio. He also breaks decisively with the lamented Michael Eisner era.

The companies confirmed after weeks of speculation that they'll merge in a massive stock swap. Disney will issue 2.3 shares for each Pixar share in a deal worth a net $6.3 billion, excluding Pixar's cash on hand. Jobs will join Disney's board and Pixar President Ed Catmull will serve as president of the new Pixar and Disney animation studios. Disney also said it will boost its buyback plan to 400 million shares from the previous 225 million.

Shares in both companies were halted ahead of the announcement of the deal.

"With this transaction, we welcome and embrace Pixar's unique culture, which for two decades, has fostered some of the most innovative and successful films in history," Iger said. "The addition of Pixar significantly enhances Disney animation, which is a critical creative engine for driving growth across our businesses. This investment significantly advances our strategic priorities, which include -- first and foremost -- delivering high-quality, compelling creative content to consumers, the application of new technology and global expansion to drive long-term shareholder value."

Lurking somewhere behind a

CNBC

set, Eisner must be cursing blue bloody murder. He can only sit and watch as Iger, the man he groomed to take over as CEO at the Mouse House, has not only smoothed out a relationship with Eisner's archrival,

Apple

(AAPL) - Get Report

founder Jobs. Iger has also engineered a deal that has the effect of making Jobs Disney's biggest shareholder.

Hollywood and Silicon Valley machinations aside, the Disney board has made a huge decision.

Disney's animation studio has struggled in recent years. Meanwhile Pixar has been the gold standard in computer-generated animation, yielding some $3.2 billion in box office from its popular efforts. While Disney, as its distribution partner, was richly rewarded in the arrangement, it was a sore spot at the company that the storied studio of Walt Disney himself was losing ground to upstarts Pixar and

DreamWorks

(DWA)

.

"Pixar's culture of collaboration and innovation has its roots in Disney Animation. Our story and production processes are derivatives of the Walt Disney 'school' of animated filmmaking," said Catmull. "Just like the Disney classics, Pixar's films are made for family audiences the world over and, most importantly, for the child in everyone. We can think of nothing better for us than to continue to make great movies with Disney."

While the $7 billion price tag on Pixar is being questioned in some circles, investors have mostly reacted positively, sending Disney shares up 2% on Tuesday to over $26. Part of the reason may be the more than $1 billion Pixar brings with it in cash, plus the feeling that Pixar would demand much better terms in any renewed distribution agreement.

Most of all, though, Disney didn't want to risk losing the Pixar goldmine to rivals such as

Time Warner

(TWX)

or

News Corp.'s

(NWS) - Get Report

, a view Wall Street seems to share.

Disney has the added incentive of getting additional revenues from Pixar DVDs, merchandise and licensing agreements. The box office numbers are just the bean from which the sprout grows. In Pixar's case, the sprout has grown giant.

Some will wonder whether Pixar, which has enjoyed massive success with each of its six major films, is doing the right thing. Nobody bats a thousand for life, and some analysts have questioned whether Pixar will be able to maintain the high standard to which audiences are accustomed to on a ramped-up production schedule. Those concerns are amplified by those familiar with the two companies' cultures.

"The Disney animation product was badly corrupted during Eisner's reign," says one leading L.A. animator. "Unlike at Pixar it was micromanaged by middle managers and not run by creative authors, as is evidenced by the craven and cynical product they've been turning out."

This person says that Disney miscalculated badly on the industry's transition to computer-generated animation, thinking that Pixar would always be there to pick up the slack. While he says Jobs and John Lasseter will maintain creative control, he also believes that some people may be "discounting the fact that a significant portion of Pixar's animators are former Disney people." The idea of going back to Disney will be "difficult for them to put it mildly," he says.