Pixar's Fantasyland

Recent SEC filings drive home that the Disney deal makes no sense.
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The smoke is clearing. The frenzied rumors and handwringing over the idea of

Disney

(DIS) - Get Report

buying

Pixar

(PIXR)

have given way to the reality of it all. The analysts have filed their reports and the investors have adjusted their positions, and all of it leads us to an overwhelming question:

Why did you do it, Pixar?

Somewhere between the releases

Toy Story 2

and

Finding Nemo

, it became clear as day that Pixar had precipitated one of the biggest role reversals in the history of the entertainment industry: It dethroned Disney, the unchallenged dream factory for the Baby Boom generation.

In less than a decade, Pixar became the unchallenged dream factory for the spawn of the Baby Boomers. Mickey Mouse became as alluring as a sputtery Oldsmobile. Woody and Buzz Lightyear were sleek, powerful BMWs, leaving old Uncle Walt in a cartoon cloud of dust on the highway of computer-generated cartoons.

For a while, Pixar even seemed ready to deliver the death blow to Disney's animation efforts, sniffing around for another distribution partner after Disney refused to give Pixar the financial freedom it demanded, including the full share of the profits of the films it created. The stalemate that resulted left Disney over a barrel and added to the sour tone that has plagued Disney's management in recent years.

Now Pixar has capitulated and given Disney something it's badly wanted for years and years: Disney owns Pixar, its lucrative film franchises, its cream-of-the-crop creative team and -- above all -- its prime piece of real estate in the hearts of hundreds of millions of children around the world.

And why? Reportedly, Pixar and Jobs were reluctant to give up control over the sequel rights. But say Disney had played the tough guy and made

Toy Story 3

or

Finding Nemo Again

. Most likely, they would have paled next to their predecessors, which would give Pixar even more cred as the top animation studio.

As often happens with big mergers, some of the more telling details aren't included in the press announcement, but tucked into an

SEC

document filed a few days later. And very often, these details are essentially reinforcements bolted over areas where the companies fear stress fractures will appear.

Sure enough, the 8-K that Pixar filed Thursday evening was full of such provisions. Pixar has to pay $210 million to Disney if it backs out of the deal -- but Disney faces no termination fee. Pixar stays in its Emeryville, Calif., facilities and won't put up the word "Disney" at its gates. And at least six Pixar executives, including President Ed Catmull and Vice President John Lasseter, must agree not to quit.

Reading the document, you can almost hear the teeth gnashing in Emeryville. This is not a deal that Pixar employees were dying to see. No Disney sign? Has the brand been tarnished that badly?

So why, Pixar? And why at the measly 2.5% premium over the price at which the market had valued the company? Pixar is up 30% in the past six months -- and that's accounting for the 5% drop in the company's stock since rumors of the takeover began to gather steam. Disney's stock is down about 3%.

Some of the analyst reports that came out after the deal was formally announced have been underwhelmed with Pixar's new prospects. Jeffries & Co. maintained an underperform rating on Pixar but said "investors would be best served by taking profits now," which sounds like a very polite way of saying sell it. Jeffries has no underwriting relationship with either company.

Others were more blunt. "We believe the deal is a better one for Disney than for Pixar, and sympathize with those Pixar shareholders who are left wondering why Mr.

Pixar CEO Steve Jobs sold out at $58.69 when the consensus was that he likely could have received a heftier premium," wrote David Miller at Sanders Morris Harris, who downgraded the stock from hold to buy. Sanders has no underwriting relationship with either company.

The lack of sense inherent in the deal -- from Pixar's point of view at least -- has set off a search for some mysterious secret that would somehow explain it all. Maybe Jobs just wanted that board seat on Disney. Maybe he sees Disney's content as necessary leverage in

Apple's

(AAPL) - Get Report

furtive plans to become the next consumer electronics giant.

Or hey, maybe it's the first step in a bold power grab by Jobs to take the helm at Disney, edging out Robert Iger. Was it just coincidence that news was leaked this same week on how Disney chairman George Mitchell quashed a headhunter's report that gave Iger bad marks? What if Jobs took over Disney, spun Pixar back off and boasted control of

three

major media and technology companies?

Crazy, yes. Unlikely, perhaps. But at least such conspiracy theories have more logic to them than a deal that will leave the most creative studio in the world in the arthritic clutches of a media giant still struggling to right a decade of past wrongs.