Bigger isn’t always better. While mergers and acquisitions can mean a tour de force as two entities become one, it carries with it inherent risks. More often than not, it has to do with people. When employees and leaders of each M&A firm work only to preserve their self-interests, they are on a dangerous slope. In fact, the newly-forged company is bound to self-implode. This has been a recurring refrain in many M&A failures, of which the AOL Time Warner mega-merger is a classic example.
Out of the blue, however, comes a merger that becomes a shining example of why mergers are a good thing. That of Disney and Pixar is one for the books. Indeed, the company that has made Mickey Mouse a household name for decades partnered with a novel enterprise, one that placed a fish named Nemo on every child’s lips.
At first, they were separate entities. The old guard Disney found Pixar nipping at its heels in the making of cartoon movies. A disagreement between the two companies may have triggered it all.
And it was all worth it. When the merger happened, Toy Story 3 also happened along with Cars 2, Up, Wall-E, and a string of other successes. Truth be told, you could say it’s a merger made in cartoon heaven.
The Behemoth and the Wonderworker
Disney is a behemoth. It’s a class all its own. Founded by the visionary Walt Disney and his brother Roy Disney on the 16th of October 1923, the Walt Disney Company has grown to the biggest entertainment company in the world by market capitalization. Today, the Disney brand is affiliated with jaw-dropping theme parks and top-caliber movies.
But Disney had competition in making good movies. Cartoon-based movies for one became the genre of an upstart company, Pixar. Founded by Star Wars creator George Lucas in 1979 as part of the LucasFilm entertainment company he founded, the computer graphics company was given new life by Apple founder Steve Jobs in 1986.
So the small division of LucasFilm spun off to become a corporate entity with Steve Jobs as a majority stockholder. Fresh from being fired from Apple, Jobs became Pixar’s savior. He infused needed capital for the computer graphics company to thrive. For years from its inception as a George Lucas graphics firm, it failed to come up with a full movie, hindered by technology.
Not until Toy Story (1995) happened and made it to box-office success grossing as much as $373 million. The movie was the world’s first full-length animated film. It was also the first Pixar-Disney collaboration. As monumental as Toy Story, it marked the reign of Pixar as the King of Animated movies.
Initially, the partnership went well: Pixar made the animated movies while Disney would distribute. At this point, these two companies were operating separately but working together. Eventually, disagreements arose, risking pulling the two companies apart. The start of the conflict arose when production for Toy Story 2 started.
As in all mergers, challenges happened between Pixar and Disney. This is a common theme in M&A: egos clash, cultures clash. That is why getting the expertise of merger integration and acquisition consulting companies is spot-on. Expert consultants ensure that a smooth transition from two separate companies to one bigger entity happens. By providing a framework for each stakeholder to work together and contribute to the overall success of the new firm.
Toy Story 2 made the cracks between the Pixar-Disney relationship show. First intended for a straight-to-video release, the film eventually was decided to go to the movies. Pixar executives felt robbed. Though they were making the movie and Disney handling the distribution, the split for the profits was 50-50. Plus, Disney had the ownership rights to the story. Worse, they collected as much as 10% to 15% of the distribution fees.
The disagreements were wide enough to break the relationship in two. Ownership rights, marketing on the characters, sequel rights were just some of the contentious issues. Making matters worse, Pixar boss Steve Jobs was not seeing eye to eye with Disney CEO Michael Eisner.
It seems Pixar was finding another company to distribute. Jobs publicly announced their desire to move on to another distribution company. This was in mid-2004
The Bob Iger Magic
Then something happened. After all the back and forth, Michael Eisner departed from Disney in 2005. And then came Robert Allen Iger or Bob Iger. He took over Eisner’s position as CEO. A friend of Steve Jobs and sympathetic to the cause of Pixar, Bob would make the merger of Pixar and Disney happen. He called up the Apple founder and after a whiteboard exercise in Apple’s HQ, history happened in 2006.
It’s a vertical merger, one making the world’s best-animated films while the other distributes. Each Pixar stock was converted to 2.3 shares of Disney stock with Disney purchasing Pixar at a valuation of $7.4 billion, making Steve Jobs the largest shareholder of Disney.
And the results say it all. Toy Story 2. Monsters Inc. Finding Nemo just to name a few. Indeed, the world is glad the adventurous talking fish meet the itinerant loquacious mouse.