Group – 2 Assignment – 2

(Roll No. 14, )

 Should Disney Vertically integrate Pixar?

In favor of Vertical Integration.

Pixar Inc. is one of the most successful animation studio in the early 2000’s there are several reasons listed
below for Disney to acquire Pixar

 Technology: Pixar used its own proprietary computer animation technology to generate
incredibly lifelike 3D images and backgrounds. At that time CG (Computer Generated) was at peak
they all lack the ability to make human characters perfectly look like realistic. Pixar has a
technology that nobody can come close to it with near 10 years. With all this Disney can make a
great comeback in the Animation film market.
 Workforce: Pixar has its origin from the University of Utah and has started with former employees
from the Computer division of the Lucasfilms. These workforce is highly creative and skilled when
it. Traditionally CG feature films were created with the large work force of the Drawing artist but
at Pixar thorough its past experiences with computers and technology they have appointed
comparatively small but highly skilled workforce of computer artist which makes them technically
superior they its rivals. Their workforce is very loyal. And most important Steve Jobs will be on the
Disney’s board of directors.
 Work Culture: Pixar took 10 years to create well balanced blend of workforces where technology
and art comes together and they believed it is the best way to operate in the industry and which
gave them results also.
 Software: Proprietary software like Renderman, Marionette and Ringmaster Pixar is the ultimate
one stop solution for the companies who are in to these animation business. If Disney acquires
Pixar these technology comes under their portfolio and they can earn enormous amount of
royalty.
 Short Films and their Accolades: By 2005, Pixar has won more than 20 Academy awards and when
Disney acquires Pixar this award winning best practices can come under their portfolio.
 String of revenue generation: Disney‘s major chunk of revenue come from merchandise business,
Theme park and Fairy ships here these all business has one common underlying asset or one
common place where it draws inspiration which is their evergreen Cartoon characters which
Disney have so does Pixar. They can use them for new revenue generation and can turn around
their existing business in to more profitable one.
 Access to profitable franchises: Pixar’s movies was biggest success when it comes to box office
revenue. From inception Pixar’s every film has earned more than $500 million which is far ago
than Disney’s average $270 million. Disney can create sequels for these movie.
 Fear of opponents to takeover: If not Disney then some other competitor studio will acquire it
then it will create much damage to Disney than anyone else so it is better to acquire Pixar.
Against Vertical Integration:

 Nevertheless, Disney should exercise caution when considering the acquisition. There is
the possibility of running into integration difficulties such as conflicting cultures. The two
companies have very different cultures, which may hinder the post-merger integration.
Pixar had a relatively smaller organization with an open culture compared to Disney,
which was a huge corporation that followed a hierarchical management structure
 There might be ambiguity regarding who would control Pixar. In the absence of coherent
transformational leadership, acquisition may end up destroying value instead
 The acquisition may be too expensive for Disney. The price-to-earnings ratio of Pixar was
46, which was significantly higher than the industry average and Disney’s of 17. Therefore,
the potential deal may cause high dilution of shareholder’s equity, which would pressure
original stockholders to sell due to the decline in share price
 As a board member, by procuring Pixar, bringing on Steve Jobs to the board may prove
harmful. Due to his domineering personality, he could possibly inuence or steer the
direction of Disney as a whole