HISTORICAL BACKGROUNDThe Walt Disney Company was founded on October 16th 1923 by brothers Walt and Roy Disney.

It is one of the largest media and entertainment corporations in the world.

It’s the owner of 11 theme parks and several television networks, including the American Broadcasting Company (ABC).

Disney started making films in the 1930’s.

Some of their first films were Snow White, Bambi and Pinocchio.

A lot of their earlier films were animated adaptations of children’s fairytales.

 BUSINESS STRATEGY BEHIND DISNEY'S MAGICAL EXPERIENCES

• Leadership ExcellenceAccording to the Disney Institute, the foundation for successful leaders is communication. To foster an engaged and collaborative company culture, the leader must encourage the creativity of his/her employees and create an environment in which it is safe and comfortable for them to share those ideas.

• Cast ExcellenceDisney uses its own unique business language to set the right tone amongst those within the company. For example, rather than using the word “employees,” Disney uses “cast members”. Similarly, customers are referred to as “guests” and jobs are “roles”. Those who work at Disney dont wear a uniform; they don a “costume”.It is an intentional element of the company culture, a culture that is well defined, clear to all, and is goal-oriented.

Pixar, co-founded by Steve Jobs, left, and Disney, run by Robert A. Iger.

HISTORICAL BACKGROUNDPixar Animation Studios was started by John Lasseter & George Lucas

Pixar was initially a computer graphics division owned by film maker George Lucas known as Lucas film limited.

In 1986, Steve Jobs purchased the computer graphics division of Lucas Film Ltd. for $10 million and established it as an independent company named Pixar , co-founded with Dr. Edwin E. Catmull.

On November 22, 1995, Pixar Animation Studios forever impacted the future of filmmaking with the release of its first feature film, Toy Story. The film went on to become the highest grossing film of 1995 with $362 million.

THE RATIONALEDISNEY -• The acquisition gave Disney ownership of the world’s most

famous computer animation studio and its talent.

• The timing was also perfect for Disney, as its own animation films were failing.

• The deal brought the technology company Apple closer to Disney.

• The decrease in competition is another motive for Disney

PIXAR -

• For Pixar it was a good move to face competitors like DreamWorks & 20th century fox.

• The deal gave Apple iTunes more video content to offer.

• Pixar can focus on its core strengths of producing the computer animation and does not have to invest in production line for making merchandise and home entertainment.

THE MERGERPursuant to the terms of the merger agreement, Lux Acquisition Corp., a wholly-owned subsidiary of Disney, will merge with and into Pixar, and Pixar will survive and continue as a wholly-owned subsidiary of Disney. On January 24, 2006, Pixar Animation Studios and The Walt Disney Company entered into a merger agreement. The deal was consummated on May 5, 2006 for a purchase price of $7.4 billion.

1. Pixar's major features have been made with Walt Disney Pictures.

2. In 1997, after the release of Toy Story, a 10-year, 5-picture deal was signed, evenly splitting production costs and profits on subsequent movies. Disney alone retained rights to the films and characters. In addition, Disney collects 10 to 15 percent of each film's revenue as a distribution fee.

3. Pixar and Disney have had ongoing disagreements since the production of Toy Story 2 (1999). Originally intended as a straight-to-video release (and thus not part of Pixar's five picture deal), the film was upgraded to a theatrical release during production. Pixar demanded that the film then be counted toward the five picture agreement, but Disney refused. There were talks of Pixar searching for new distributors.

4. On January 24, 2006, Disney announced that it had agreed to buy Pixar for approximately $7.4 billion.

5. Disney was offering 2.3 shares of its stock for each Pixar share. That's a 3.8% premium on Pixar's closing price of $57.57 (2006).

6. The transaction would catapult Steve Jobs, who was the majority shareholder of Pixar with 51%, to Disney's largest individual shareholder with 7% and a new seat on its board of directors.

To purchase Pixar, Disney exchanged 2.3 shares of its common stock for each share of Pixar common stock, resulting in the issuance of 279 million shares of Disney and converted previously issued vested and unvested Pixar equity based awards into approx. 45 million Disney equity based awards.

The acquisition purchase price was $7.4 billion in an all-stock deal.($6.4 billion of stock and Pixar’s cash & investments of approx. $1.0 billion).The value of the stock issued was calculated based on the market value of the company’s common stock using the average stock price for the five day period beginning two days before the acquisition announcement date on Jan 24th, 2006.

The fair value of the vested equity based awards issued at the Closing Date was estimated using the Black-Scholes option pricing model .

THE METHOD

 BUSINESS STRATEGY BEHIND PIXAR• Care about people firstPixar had drifted into dangerous territory by putting the movie ahead of the well-being of its people. The harm done to employees, and what could have happened to the child, was a wake-up call that solidified Catmull’s core belief that people must always come first.  He identifies three reasons.  First, it’s a leader’s responsibility to protect the people he or she leads from pursuing excellence at all costs and it’s irresponsible to do otherwise.  Second, no organization is sustainable that allows harm to come to its people. The best people will not be attracted to nor remain in a culture that ignores their welfare.  Third, ideas come from people so people need to be the priority.

• Focus on a purpose that makes people feel proudPixar’s purpose is to “make great films.”  Its leaders are unambiguous about communicating this.  Making great films is what attracts people to Pixar.  It makes them feel proud and energizes them.  It’s why they stay.

When Pixar focuses on making great films, profit follows.  Focusing on profit first would lead to compromising the purpose and sucking the passion and energy out of the organization.  This seems simple on the surface yet how many leaders truly understand this and act upon it?    

• Encourage self-expression and diversity of thoughtIn most companies the overwhelming majority of employees feel that senior management does not value their opinions and ideas.  Not so at Pixar.  Catmull says that great movies are made from the “tens of thousands of ideas” that go into them from beginning to completion.  As such, everyone needs to contribute their ideas and opinions, everyone’s work matters and everyone makes a difference in the quality of a film.Catmull understands that creativity and innovation are maximized in a community with a rich marketplace of ideas.  The best ideas can come from anyone in the company so leaders must add to the environment whatever encourages self-expression and diversity of thought.  They also need to remove obstacles that diminish the marketplace of ideas.