Analysis of

Negotiation:
The Walt Disney
Company Acquires
Marvel Entertainment,
Inc.

MGT 4183-Negotiations
Professor Valcea

Patrick J. Flynn
Luke D. Gastgeb
Hank W. Latimer
Josh G. Myer
Brian A. Shelton
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Table of Contents:
I) Introduction….............................................................................
pg.3

a) Overview of the Negotiation

i) The Merger

ii) Keys to the Deal

iii) The Scope of our Analysis

II) Background
Information…...........................................................pg.4

a) Disney

i) History

ii) Current Business Nature

b) Marvel

i) History of the Industry

ii) Current Business Nature

III) Examining the

Negotiation….......................................................pg.6

a) Explaining the Merger

b) Making Sense of the Merger

i) Marvels new Role and its Potential

ii) Disney’s new Role and its advantages

c) Identifying The Foundations of the Negotiation

d) Analysis of the Negotiation

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IV) Conclusion/Summary…................................................................
pg.
 I. Introduction

a.) Overview of the Negotiation

In a landmark acquisition, The Walt Disney Corporation took just seven months to

reach concessions in their negotiation with Marvel regarding a merger, dating back to

their initial discussions on February 18th, 2009. On that day, a typical business meeting

between Marvel’s Chairman David Maisel, and Disney President Robert Iger transcended

into a recognition of the vast strategic advantages that each company could offer the

other. On August 28, 2009, the two giants came to an agreement. Disney agreed to pay

Marvel the equivalent of $50 per share, or about $4.24 billion total. The buy-out is

Disney's largest purchase since its memorable $7.6 billion purchase of Pixar Animation

studios in 2006. Disney’s almost $4.5 billion dollar acquisition gives the worldwide

leader in family entertainment exclusive rights to the over 5,000 characters on Marvel’s

roster. ((SEC Form S-4))

Disney plans to use these characters indefinitely through their development in

future television shows, theme park attractions, primetime movies, and video games. On

top of that, Disney has searched high and low looking for a way to reach males in their

teenage years; something that Marvel could certainly help them accomplish. Actually,

because Marvel saw such staggering growth over the last few years since introducing its

characters to the big screen, it is necessary for them to seek a greater market-share

through global-expansion. Marvel's brand recognition continues to grow exponentially as

they pump out feature films starring characters like Spiderman, Ironman, and Wolverine.

Their public appeal, combined with Disney’s track record for advancing corporate

strategy, should prove to be a match made in heaven.

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In our analysis, we hope to identify and uncover the fundamental negotiation

processes that have ultimately led to an epic merger. Without a doubt, Disney believes

that, “adding Marvel to Disney's unique portfolio of brands provides significant

opportunities for long-term growth and value creation.” (( 1.)) In other words, they plan

to take full advantage of the indispensible nature of intellectual property rights.

Meanwhile, Marvel-CEO Ike Perlmutter believes that, "Disney is the perfect home for

Marvel's fantastic library of characters, given its proven ability to expand content creation

and licensing businesses". (( 2.)) Disney's tremendous size, global organization, and

infrastructure throughout the world will provide Marvel with countless growth

opportunities.

II. Background Information

a.) Disney

Brothers Walt and Roy Disney founded the Walt Disney Company on October 16,

1923. Today, The Walt Disney Corporation is the single-largest media and entertainment

conglomerate in the world. The company initially established itself as a leader in the

American animation industry; before diversifying and producing live-action films,

hosting a cable television network, and dominating the international travel scene. It is

divided into four primary divisions: The Walt Disney Studios, Disney Parks and Resorts,

Disney Consumer Products, and Disney Media Network. Its film studio is among the

most well-known and well-respected studios in the world, and has made a countless

contribution to children’s cinema. Boasting a market cap of $63.14 billion, Disney has

remained on the DOW Jones Industrial Average since May 6, 1991. (( 3.))
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b.) Marvel

The Marvel Entertainment Group, Inc. is the largest American publisher of comic

books. The company got its start towards the end of the Great Depression, when Martin

Goodman founded what was then known as Timely Publications, in 1939. Following its

origin, Timely Publications grew unhindered during the 1940s, subsequently becoming

known as Atlas Comics in the mid-1950s. It wasn’t until 1961 that the name Marvel

Comics came about, accompanying the launch of the Fantastic Four. Marvel Comics

operates using three integrated and complementary operating segments: Licensing,

Publishing, and Film Production. Its Licensing Segment is involved in several joint-

ventures with large entertainment corporations, like Sony. Marvel generates most of its

revenue by “licensing” (selling) the rights of its characters to those who want to use them

to produce a profit. The recent addition, and success, of its Film Production department

is a key aspect of the negotiation, and it leaves Marvel in a good position with, or

without, Disney.

So far, it appears as though Disney and Marvel have seldom disagreed about the

idea of a merger. For the most part, they even agree about the general price of the

negotiation. However, there are many points of interest pertaining to the rights of each

party that may have prevented a concession. It is important to note that while both

parties may agree about the strategic advantages of the merger, they each want to make

sure they do not end up on the losing end at some point down the line. It is for this

reason, that each of the parties employ a staff of twenty-or-so lawyers on retainer, who

worked around the clock trying to keep key issues tilting unnoticeably in their favor.

Walking through several advantages and disadvantages for each party will help to shed

light on issues that may appear to be resistance points for each party. Investigating these
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not-so-obvious, underlying goals and expectations for each party will make analyzing the

actual negotiation process easier.

III. Examining the Negotiation

a.) Explaining the Merger

Under the decided agreement, Marvel shareholders receive a total of $30 per

share in cash plus approximately 0.745 Disney shares for each Marvel share they own.

By virtue of this agreement, Disney acquires ownership of Marvel, including licenses to

its more than 5,000 patented characters. Based on Marvel’s share price the day before the

merger, the current deal offers shareholders an amount that is thirty-seven-times Marvel’s

estimated 2009 earnings; a premium of almost 30%. (( 5.)) Disney did not just

relinquish those payoffs without a fight, they had to make sacrifices in order to attain the

more important of their goals and interests. Had they not made sacrifices, they most

likely would have ended up with a less-pleasing alternative.

b.) Making Sense of the Merger

The acquisition of marvel was valuable for Disney in two distinct ways. It

eliminated competition, and it expanded Disney’s target market to include a wider range

of products. These assets ensured Marvel as a valuable addition to Disney’s portfolio.

At first glance, Disney and Marvel may not seem like companies that would be

competing with each other, since Disney is not known for comic books and Marvel is not

known for cartoons. However, upon further investigation one can see how these

companies were competing for the same market in several ways. Marvel derives a

significant portion of its revenue from action figures, of which the main consumers are

children. Disney also markets the main characters of their most popular shows to

children. Since Marvel's toy sector was more profitable than Disney’s toy sector, the
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acquisition of Marvel is a good way for Disney to improve the profitability of their toy

sales. This also helped Disney expand their target market in the toy industry, since Marvel

action figures were more effectively targeted towards younger males. This is not to say

that Disney targeted only younger females, but, rather that action figures are so widely

consumed among children’s toys that the acquisition of such a market-leading

organization has the ability to significantly increase Disney’s market share in the toy

industry. To top it off, the relationship with Hasbro that both companies have already

established through licensing agreements makes for a smoother transition, with no need

to design or negotiate additional contracts.

Another point of interest in the acquisition of Marvel is the fact that Disney will

be able to add many new characters to their very successful theme parks. In its current

state, Disney World is a place for small children. Yet, the addition of characters like

Spider-Man, The Incredible Hulk, and Iron-Man will allow Disney to successfully market

to children of all ages. It also allows Disney to introduce new rides and attractions

featuring some of the most well known Marvel characters. These additions have the

ability to considerably help Disney increase the revenue of their parks.

Arguably, the most profitable reason for Disney to acquire Marvel is its booming

movie business. Movies featuring Marvel characters have made billions of dollars at the

box office since 2000 (Disney). Producing movies remotely, through the use of an

external studio, has proven to be an excellent catalyst for the fast-growing "Film-

Producing" segment of Marvel's business. As a matter of fact, many predict that this

growth will persist and likely even grow larger. They have been slowly evolving their

productions and shortly they will unleash movies like Iron-Man 2, Spider-Man 4, Thor,
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and several others that are currently in the works. Similar to the momentum boost it

could give to the toy industry, acquiring Marvel may also helped Disney discover their

target audience of the movies that they produce. Movies like Iron-Man have the ability to

appeal to a very large audience, from young children, to teenagers, all the way up to

adults. This broad range of viewers is something that many Disney films lacked the

ability to obtain, and stands out as one of their only weaknesses regarding strategic

positioning.

After countless casual interactions with Marvel, Disney decidedly opened the

Negotiations in February of 2008 "to get to know them," (Disney). Disney Chief

Financial Officer Tom Staggs told Reuters. The overture began with a meeting between

Disney Chief Executive Robert Iger and Marvel CEO Ike Perlmutter and evolved into

merger discussions over a series of meetings.

b.) Identifying the Foundation of the Negotiation

When beginning our negotiations regarding the merger, the first step for both

parties is to identify the problem(or in this particular case, goal). See, because there is a

distributive range, and because each of them have readily identified the potential

synergistic advantages they can each develop; it is likely that the parties will have the

same goal. Obviously, the parties are opposites with regards to who they need to

negotiate with, and yet their problems remain somewhat similar. Regardless, each is

focused on the conditions of the merger; Disney is aiming to get more control, and reduce

its risk; while Marvel would like to maximize its profits, and salvage its freedom. The

needs of each party were relatively vague, and not incredibly important. The bottom line

being that neither of the parties were in any real danger if they decided to forget about the

whole deal all together. Within the context of the negotiation however, each of their
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needs aligned well with what was discussed earlier regarding the conditions of the

merger.

The goals of each party are somewhat enveloped in the "problem", yet there are

still several smaller issues remaining at the heart of the decision makers. The two major

items of dispute are the "merger agreement", and the "voting agreement". Marvel Chief

Executive- Isaac Perlmutter, owns 37% of Marvel's shares through various affiliates.

(Parnass). Upon receiving Disney's initial agreement drafts, Perlmutter was the first one

to disapprove. There was no way Marvel would accept the required forced voting, the

break-up fee of 4%, and most importantly the sanctions impinging on Perlmutter's right

to do with his shares as he pleases. Marvel's relatively much higher BATNA played a

huge role in their willingness to say "no" with ease. It was at this point, that Iger, who is

clearly Disney's decision-maker, found out who the decision maker was for Marvel, in

Mr. Perlmutter. Marvel's reluctancy to accept the merger agreement was initially due to

the fact that Disney included terms that disallowed Marvel from seeking out a better offer

if it were to arise. However, at no point in the negotiations did a third party get involved

in the dealings other than the investment banks. This is likely a result of the tremendous

amount of equity that was involved in the deal.

Money plays a big part in any merger, especially this one. However,

relationships seem to be even more essential when dealing with niche markets like comic

books, not to mention Intellectual Property. Executives at Disney were able to see the

potential for growth at Marvel lightyears before other industry competitors. More

importantly, they wanted to keep it that way. Igor and Perlmutter both know the value of

intellectual property like the 5,000 characters that Marvel has the rights to. Thus, if
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relations are strained between Disney and Marvel, the result could be catastrophic for

many parts of Disney's organization. Poor relations could cause a paradigm shift in the

industry if Marvel decided to sell rights to competitors, instead of Disney. The simple

fact that Disney did not have that same authority over the specific marketplace that

Marvel resides in is the most important indicator of who has a better BATNA, and thus a

better chance at getting greater value from the negotiation. Each of the elements

described are, for the most part, a direct reaction to this implied power residing with

Marvel.

The negotiation still took place though, which indicates two good negotiators, if

nothing else. As important players in mega-corporations, each of the main decision

makers' were somewhat inclined towards a competitive strategy. This is evident first in

their initial offers, where each offered the other a price that they essentially knew was out

of range. Yet, this style became even more evident in the next round of haggling, where

once again each negotiator made an offer that was almost-guaranteed to get rejected.

Although, keeping in mind Marvel's relatively strong BATNA, Iger and Disney

relinquished their lofty expectations and allowed Marvel the freedom and opportunity

that it deserved, which I would classify as more of a collaborative style. Strategically I

think each party held on to those things that they realistically could expect to receive, and

in the end they were both rewarded for their humility with a smooth transaction.

c.) Analysis of the Negotiation

In evaluating the merger between comic book giant Marvel and the movie giant

Disney, one can sift through the negotiations and identify the key parts of their talks in

terms of target, resistance, starting points, BATNA, and leverage. The starting point in

the negotiation for Marvel was in their initial, general offer of over $50 per share paid in
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almost entirely Disney stock. This starting point was immediately too high for Disney,

whose own starting point was somewhere between $46 and $48 per share and wanted to

pay in their stock and cash. These two starting points left plenty of room for negotiation

for a final number to be reached upon, immediately giving the bargainers the distributive

range that could be worked to attain. The resistance point from the beginning for the two

companies seemed to be that Disney did not want to pay anything over $50 per share and

that Marvel wouldn’t accept anything less than $50 per share. These clear-cut resistance

points in the negotiation may seem like there is an obvious settling point at $50, but

neither side wanted to end the negotiation without trying to get a little more. For

instance, in the final days of the negotiations Marvel negotiators gave one more push to

see if they could at least get $51 per share out of Disney, but they were yet again firm in

their resistance point. In terms of the two company’s BATNA, or Best Alternative to a

Negotiated Agreement, there seemed to be a difference between the two sides. Marvel’s

BATNA was that they could continue to do what they had been doing, producing and

financing their own movies and being their own boss, which has undoubtedly been

working in terms of their movie’s recent success. Thus, Marvel had a strong BATNA

going into the negotiations, and would likewise need to be swayed with terms that were at

least as good as what they currently had. Disney on the other hand did not seem to have

as strong of a BATNA, Marvel currently held the rights to the characters that they

wanted, but one would have to say that Disney’s BATNA would have been to just try to

license the character rights from Marvel, which is what they currently do with other

companies such as FOX. The difference between the two company’s BATNA strength

undoubtedly helped shape the negotiation, and would have to be the strongest leverage
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Marvel had. In regards to leverage, outside of BATNAs for the two companies, there was

no clear advantage. Both companies used equally respected banks as advisors to the

negotiations in Merrill-Lynch and Bank of America for Marvel and Disney, respectfully.

The biggest leverage would have to be Disney’s pure size, as one of the oldest and most

respected media monsters, their name alone and the respect entitled with it undoubtedly

helped them get some leverage in the negotiation. Overall, these are just some of the key

aspects of the negotiation between Disney and Marvel and the key determinants that

shaped the negotiation and how they resulted.

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D'Hondt, Francis. "Toy Makers." Web. 22 Apr. 2010."DISNEY TO ACQUIRE

"Disney to acquire Marvel in $4 billion deal." Reuters. Reuters,

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<http://www.fundinguniverse.com/company-histories/Marvel-
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"Marvel Entertainment Group, Inc.." Marvel Entertainment Group, Inc. –

Company History. Funding Group, n.d. Web. 27 Apr 2010.
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Parnass, Geoffrey. "The Disney-Marvel Merger Negotiations: From
the Opening Scene to the Closing Credits ." Acquisition
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Rabil, Sarah. "Disney to Buy Comic Book Maker Marvel." Web. 22 Apr. 2010
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