Disney buys Pixar (2006)
In January 2006 Disney agreed to buy Pixar, the studio behind Toy Story, in an all-stock deal. Disney needed hits after weaker animated films, and Pixar's distribution deal with Disney was about to expire.
Key numbers
- ● Deal value: about $7.4bn
- ● Payment: all stock
- ● Steve Jobs: became Disney's largest individual shareholder (about 7%)
- ● Announced: 24 January 2006 (2.3 Disney shares for each Pixar share)
The background
Pixar made Toy Story in 1995, the first fully computer-animated feature film, and followed it with hits like Finding Nemo. Under a long-running agreement, Disney distributed Pixar's films and shared the profits. Talks to renew it broke down in January 2004, and Disney's own animated films were struggling. When Bob Iger took over as Disney's CEO in October 2005, he reopened talks with Pixar's boss, Steve Jobs.
The deal
On 24 January 2006 Disney agreed to buy Pixar in an all-stock deal: each Pixar share was swapped for 2.3 Disney shares. That valued Pixar at about $7.4bn, or about $6.3bn after subtracting the just over $1bn of cash Pixar held, because the buyer gets that cash with the company. Jobs owned about half of Pixar, so he became Disney's largest individual shareholder with about 7% and joined its board. Ed Catmull became president of both Pixar and Disney Animation, and John Lasseter became chief creative officer. The deal closed in May 2006. Paying in stock had two effects. Disney kept its cash, and Pixar's shareholders now shared in Disney's future. But Disney issued new shares, which diluted its existing shareholders. Because the exchange ratio was fixed, the deal's value moved with Disney's share price until it closed.
What happened
Pixar kept making hits, including Toy Story 3 (2010), which earned over $1bn at the box office. Disney Animation, now led by Pixar's team, also recovered with films like Tangled and Frozen. Disney repeated the formula with Marvel (2009) and Lucasfilm (2012), paying about $4bn for each.
The takeaway
This was a strategic acquisition for capabilities: Disney bought creative talent and a proven process rather than trying to build them. The hard part of such deals is integration. Disney kept Pixar's culture intact instead of absorbing it, which is a big reason it worked.
The numbers behind it
Price: about $7.4bn, or about $6.3bn net of Pixar's just over $1bn of cash
Payment: all stock, at a fixed ratio of 2.3 Disney shares per Pixar share
Enterprise value logic: the buyer gets the target's cash, so net cost = equity value minus net cash
Dilution: Disney issued new shares, and Steve Jobs ended up with about 7% of Disney
Fixed exchange ratio: the deal's dollar value moved with Disney's share price until closing
DCF angle: the value depends on future hit films and keeping the creative team, which is very hard to forecast
Why it matters
A strategic acquisition for creative talent and content, not just cost savings. Paying in stock tied Pixar's owners to Disney's future. Disney later made similar deals for Marvel and Lucasfilm.
Interview angle
Practise explaining strategic versus financial rationale for an acquisition, and why a buyer might pay in stock instead of cash. Likely question: Would you have paid $7.4bn for Pixar?
Educational only, not financial advice.
Quick quiz
1 / 3Disney paid for Pixar entirely in its own shares. What does that mean for Pixar's shareholders compared with a cash deal?