Apple CEO Jobs about to own Disney?

[eleven24]

This, from today's edition of the Wall Street Journal:

January 19, 2006; Page A1
Walt Disney Co. is in serious discussions to buy Pixar Animation Studios after months in which the two animation giants have been exploring ways to continue their lucrative partnership, according to people familiar with the matter.

In the deal under discussion, Disney would pay a nominal premium to Pixar's current market value of $6.7 billion in a stock transaction that would make Pixar Chairman and Chief Executive Officer Steve Jobs the largest individual shareholder in Disney, according to people familiar with the situation. That would vault Mr. Jobs into an even more influential place in the media world, where he already holds tremendous sway as head of Apple Computer Inc. Yesterday, Apple reported that net income nearly doubled in the latest quarter on huge demand for its iPod music players. (See related article.)

People familiar with the situation caution that the talks are at a sensitive stage and that the outcome isn't certain, noting that other options are possible.

Disney and Pixar have been partners for more than a dozen years under an arrangement in which Disney has distributed and co-financed popular and profitable Pixar movies such as "Toy Story," "Finding Nemo" and "The Incredibles." Two years ago, however, Mr. Jobs abruptly said he would end the relationship when it expires later this year and seek a new distribution partner, amid acrimony with then-Disney CEO Michael Eisner.

Disney CEO Robert Iger, who took over last October, has made it a priority to get the companies' relationship back on track. Talks have gained momentum in recent months and a resolution could come soon. In a warming of relations, Mr. Iger last fall decided to allow Disney TV shows like "Desperate Housewives" and "Lost" to be made available in a format that could be downloaded and played on Apple's iPod devices.

Both sides accept that Pixar's stock price has a takeover premium built into it after weeks of speculation that Disney might try to take a stake in the company or buy it outright. However, the companies are still haggling over a final price, and any sharp moves in Pixar's share price could easily push the negotiations off course. People familiar with the situation say the two sides could decide on a less-ambitious course, including some form of agreement for Disney to distribute movies that Pixar finances and makes.

An acquisition would give Pixar and Mr. Jobs a way to cash in on the company's unbroken run of blockbuster, computer-animated films. Mr. Jobs would likely join the Disney board, people familiar with the situation say. And Pixar's John Lasseter, the Disney alumnus who directed "Toy Story" and the upcoming "Cars," would take on an expanded role overseeing Disney animated movies. Pixar is now near a point where it needs to decide who will distribute its post-Disney releases, including a film about a rat living in an upmarket Parisian restaurant.

While Disney could face questions about Pixar's high valuation, the deal under discussion would secure for Disney the most successful producer of one of its most important products: animated movies. Disney's own feature animation department is in the midst of a still-uncertain transformation as the company moves from the hand-drawn movies on which it made its name to the computer-animation genre that has overtaken it in recent years. Disney's first entry in the computer-animation business, the recent "Chicken Little," was a modest success.

Since taking over last fall, Mr. Iger has made it clear that animation must be the No. 1 creative priority for the Burbank, Calif., entertainment company. Disney pioneered the genre with classics such as "Snow White and the Seven Dwarfs" and revived it decades later with a string of new hits such as "The Lion King."

But Disney's traditional hand-drawn films began to suffer commercially when movie audiences took to computer-animated fare such as Pixar's films and DreamWorks Animation SKG's "Shrek" series. Still, Disney was able to benefit from the rise of computer animation through its association with Pixar. An acquisition of Pixar would give Disney a much-needed leg up in restoring its leadership in the business.


An acquisition also would give Disney greater access to a stable of new characters that could be leveraged across the Disney empire in the same way it built franchises around its own characters. It would also ensure that Pixar is involved in making sequels to its movies -- something Disney currently controls -- and give Disney access to cutting-edge technology. For the fiscal year ended last Oct. 1, Disney reported profit of $2.53 billion on revenue of $31.94 billion.

Mr. Jobs has nurtured Pixar from humble roots into a major force in computer-animated films. Mr. Jobs acquired the computer-graphics division of filmmaker George Lucas's Lucasfilm Ltd. for $10 million in 1986 and financed the company, which he renamed Pixar, throughout the late 1980s and early '90s out of his own pocket as it produced short films, commercials and software. At the time, it wasn't clear whether audiences would accept feature-length, computer-animated films.

Then, in 1995, came "Toy Story," the first fully computer-animated feature film. It became the highest grossing movie of the year and started an unbroken string of hits for Pixar. Pixar went public that year, raising $140 million in an initial public offering. For the fiscal year ended Jan. 1, Pixar earned $141.7 million on revenue of $273.5 million.

Mr. Jobs remains the largest shareholder in Pixar, with slightly more than 60 million shares, or 50.6%, according to Pixar's filings with securities regulators last year. At its current share price, Mr. Jobs's stake is worth about $3.44 billion.

Analysts estimate that Pixar's current share price includes a takeover premium of several dollars. In 4 p.m. composite trading yesterday on the Nasdaq Stock Market, Pixar's shares were at $57.26, up 32% since the start of 2005 and up nearly 9% so far this year.