Disney & Pixar

After careful examination of the Disney-Pixar deal it is evident that Pixar had more power in the negotiations. Pixar had the option to seek another partner for distribution but it was Disney who had no options. Walt Disney hadn’t produced a hit animated movie in years, and hence it was time to stop wishing and start acting. Acquiring Pixar would be a very bold act indeed. The importance of animation to Disney over the years is obvious. Nothing creates more of an impact at this company than a successful animated film. But Disney animation hadn’t turned out a major hit since Tarzan in 1999, and with increasing competition from Pixar and DreamWorks Animation, the company was struggling to produce films that resonate with today’s audience.

With Disney and Pixar having enjoyed a successful and longstanding distribution partnership, it's no surprise that buying Pixar was option No. 1. But the single best reason for Disney to buy Pixar is that the latter is the king of today’s animated film world. Since releasing "Toy Story" a decade ago, Pixar has created one mega-hit after another. Its titles include, "A Bug’s Life," "Monster’s Inc.," "Toy Story 2," "Finding Nemo" and "The Incredibles."

There are few more reasons why Disney wanted to buy Pixar.

1) It will be able to continue merchandising all the characters of Pixar animations.

2) From a Disney shareholder perspective, the possibility of having Steve Jobs as a top shareholder and active board member was very exciting. His success at Pixar with the turnaround of Apple, Jobs has done a great job of visualizing and then realizing how technology would transform entertainment.

3) Apple's iPod and iTunes already dominate the digital music market, Job’s understands the potential, and while a major player in movie creation and traditional movie distribution, Disney could also emerge as the primary beneficiary of online distribution.

At roughly 20 times sales, Pixar wasn’t a bargain. But with huge cash reserves and cash flow of Disney sitting idle, the question wasn’t whether Disney can afford to buy Pixar, but whether it can afford not to. Hence I believe that Pixar was the stronger party in the negotiations. Disney wanted Pixar and wanted it badly, and that made them the weaker party in the deal.

Being the weaker player in the deal Disney had to accept a lot of terms and conditions. Disney’s absorption of Pixar puts Steve Jobs on the company’s board of directors and appoints Pixar’s John Lasseter as Disney’s new Chief Creative Officer Disney does buy Pixar but Steve Jobs would become the company's most important player for no other reason than the large chunk of Disney stock he would get in the transaction. He would be its largest shareholder -- by far. The all-share deal will make Steve Jobs, the chief executive of Apple, around $3.5bn. Jobs created Pixar in 1986 when he paid $10m for the computer animations division of Lucasfilm, owned by Stars Wars creator George Lucas and he definitely got a great return on his investment. And then there's the whole Steve-Jobs-is-now-on-Disney's-board-of-directors issue .Steve Jobs on the Disney board would probably be good for Disney shareholders -- but it could be hell for those who sit around the board table with him.. If Iger thought he had his hands full dealing with Roy Disney & Stanley Gold