Financial Performance of DisneyPixar

after the deal, stockholders got an increase share price frommerging the two
companies. For example, shares of Pixar gain nearly 3%from after-hours
trading and Disneys stock gained about 1.8% in regular trading.With
regards to synergies, the team up of these two big animation
productioncompanies will enable better human resource. They can exchange
thevaluable human resource between Disney and Pixar, which enables them
tobetter, produced even top hit motion pictures. Both parties can market
itsproduction together and get more profit. Considering the structure of this
deal,both companies can concentrate on their individual strengths, which
will turnin an increase of productivity and generate more sales
Overall it was a very successful integration, which was intenselydiscussed in
the press as well as the management literature and research.The financial
results (and here we only look at the Box office success,not taking into
account the retail revenues Disney achieved through its widedistribution and
sales network in its Parks, etc) clearly prove this success.Since the merger,
Disney-Pixar generated $4.1 billion in Box office revenuesin only 5 years.
Compared to $3.2 billion in the previous 9 years.There were two major
issues that the public and Wall Street fearedafter the acquisition of Pixar
through Disney. One was that Disney with itssheer size - would trample
Pixars creativepower and turn the Pixar executives into mereDisneypuppets. The other scenario depicted aspoiled team of Pixar executives and
animators,completely unwilling to make this partnership asuccess and not
respecting the requests of itsnew owners.But luckily, both apprehensions
didntmaterialize. On the contrary, the merger isnoteworthy for the success it

had and howapparently easy the integration was so far.Despite many

mergers that destroyed more value than they were anticipatedto create
(especially in the media sector), Disney and Pixar made it work. Wallstreet
showed its content with this deal with an average stock price of $25before
the deal, about $35 after one year and still a stable $30 after almosttwo
yearsThe Company allocated the purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their
fair values. Goodwill of $4.8 billion, $0.4 billion, $0.2 and $0.2 billion was
allocated to the Studio Entertainment, Consumer Products, Parks and
Resorts and Interactive Media operating segments, respectively. The
goodwill is not amortizable for tax purposes.
The following table presents unaudited pro forma results of Disney for fiscal
2006 as though Pixar had been acquired as of the beginning of fiscal 2006.
These pro forma results do not necessarily represent what would have
occurred if the Acquisition had taken place as of the beginning of fiscal 2006
and do not represent the results that may occur in the future. The pro forma
amounts represent the historical operating results of Disney and Pixar with
adjustments for purchase accounting.

Fiscal Year 2006

(unaudited)
Revenues

34,299

Net Income

3,395

Earnings per share

Dilute

1.52

Basic

1.56

After Merger Perfomance

The Walt Disney-Pixar merger carries a number of convincing advantages
for Disney, but Pixar shareholders should be less enthusiastic about such a
deal. Pixars resources and capabilities have set a standard that is extremely
difficult to imitate. Through its highly talented employee pool, culture of
creativity and collaboration, and proprietary 3D computer animation
software, Pixar has created a competitive advantage in the animation film
industry that yielded average total box office sales of $538 million with just
six movies. Pixar shareholders should be wary of the potential breakdown of
these resources and capabilities, which in essence are its core competencies.
While a merger could mean more dollar signs for Pixar, it is more likely to
result in the end of a firm whose resources and capabilities lend an
advantage in the animation film industry. A renegotiated equity alliance that
gives Pixar the chance to earn more than 40% of total profits of a film versus
Disneys 60%.would be a better strategic option for Pixar.
The current situation that Disney faces is very unique. Considering its
relationship with Pixar, Disney holds a powerful set of options to choose
from. Considering the pros and cons of options we introduced previously, we
recommend going with the full acquisition of Pixar. While it is
recommended for Disney to acquire Pixar, the merger should be done in a
way that ensures a positive, sustainable relationship that maintains diversity.

Through the acquisition, Disney can exclusively hold onto the talent that
Pixar cultivates. Pixar and Disney both bring a value of fan base and name
recognition, which can be powerful when combined. Most importantly,
Disney will have control of the revenue stream for both organizations, which
will prevent any polarizing negotiations, as both will be under the same
roof. Each employee of both sides will consider themselves citizens of
Disney, increasing cohesiveness in the firm.
Although the two organizations would be under the same roof, they should
still maintain independence in terms of structure, while being collaborative
in the creative process. It is also important to mutually mention both names
in all collaborative films, so audience and fans of either company can be
attracted to the films. When negotiating the deal with Steve Jobs, Disney
should be generous in the offer it extends. If they hope to maintain a great
relationship with the organization they are buying, Disney must make sure
Pixar is happy with the deal. The key target of the negotiations is Steve Jobs,
as he is the would-be majority shareholder for Disney. Disney can offer him
leadership in the creative department, and exclusive deals with Apple ITunes
to bring additional benefits. Overall, we believe that acquisition is a great
decision for Disney at this point. Combined, Pixar and Disney bring a
powerful arrangement of tools and resources. To ensure a sustainable
competitive advantage, we recommend acquisition over all other alternatives