The Walt Disney Company and Pixar Inc. Case Solution
The industry is wholly dependent on the creativity and innovations that make it easy access to the industry for the newcomers. New players are coming with the innovative ideas and talent to the market, which is becoming a threat to the current players. The increasing number of new players makes it a high threat of new entrants. The threat of substitutes is termed as moderate, as the substitute for the animation filmmakers is generally the other type of filmmakers, which include comedy, action, and another type of movie makers. These type of movies are attractive and have huge fan base, while the animated movies have their charm and an attractive fan base. The rivalry in the industry is assumed as high, since the Company is facing huge competition from the newcomers as well as current players, due to increasing technology and creativity.
Synergies Attainable by Acquisition
The acquisition will make DisneyÂ get an immediate access to the core capabilities of the Pixar Inc, including its financial, technological, human, and cultural capabilities. The main synergy attained by Disney is the technological resource of the Pixar Inc. Pixar is the pioneer in 3D technology that will help Disney to be a competitive and technologically advance in the market. Pixar has highly skilled and technically advance employees, including Steve Jobs. This will also be assumed as the synergy for Disney, which it would get by acquiring Pixar. Pixar has a collaborative culture that encourages creative ideas that will help Disney in order to come up with innovative characters in films. The Price to Earnings ratio of Pixar is 40, this is assumed as pretty higher than the market, which will provide value to the shareholders equity. Pixar has a CAGR of 43 percent in its revenue generation from the year 1994 to the year 2004. The income statement of the year 2004 shows that the company has costs for revenue generation of less than 11 percent as compared to 85 percent of Disney. The high reputation and high share price of Pixar will also help Disney to increase its share price.
Risks Associated with the Acquisition
The major risk involves a cultural clash of both the companies. Pixar treated its employees better than how employees are treated in Disney. Pixarâ€™s culture is collaborative, while Disney has a more bureaucratized culture. The stock dilution is another issue that might be faced by Disney, as the price of Disneyâ€™s share is 2.3 as compared to Pixar’s one share. The Acquisition of Pixar might give the opportunity to Steve Jobs to be on the Board of Directors with high percentage of share in Pixar, which reflects on the possibility that Disneyâ€™s investors might lose their hold on the company.
It will be a win-win approach to both the companies if the merger takes place. Disney will have access on all the synergies and the need for capital to Pixar will also be fulfilled by merger. However, the Disney should be adaptive to Studio culture of Pixar to make this deal worthy, as the collaborative culture of Pixar is the most needed culture in any advanced technological industry. The merger will increase not only the customer database but also increase the quality of films, which will increase the revenues and net income of the company……………………..
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