Disney buys Pixar

Animation giant is paying $7.4 billion in stock--a deal that makes Apple Computer CEO Steve Jobs the single largest Disney shareholder.

Walt Disney announced Tuesday that it's paying $7.4 billion in stock to acquire Pixar Animation Studios--a deal that puts Apple Computer CEO Steve Jobs on Disney's board of directors.

For the venerable animation giant, the move is a significant bet on Pixar's digital approach as the successor to the pen-and-ink industry popularized by Walt Disney. The purchase is also the latest indication of a tectonic collision between technology and Hollywood.

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As part of the deal, expected to be completed this summer, two Pixar veterans will head Disney's animation efforts. Ed Catmull, who had served as Pixar's president, was named president of the combined Pixar and Disney Animation Studios. John Lasseter, the Pixar executive vice president who is widely regarded as the studio's creative leader, was named chief creative officer. Pixar will remain in its San Francisco Bay Area headquarters.

Jobs said Pixar's main choices came down to selling out to Disney or working with another studio under a deal like Lucasfilm has with Twentieth Century Fox, in which the larger studio gets only a distribution fee. The latter option was somewhat attractive, Jobs said, but would still result in an arrangement with "two companies with two separate sets of shareholders and two different agendas."

"Disney is the only company with animation in their DNA, and the only company that we think has this incredible collection of unique assets like the theme parks, that are very attractive to us as well," Jobs said on a conference call with investors. "They're the only company who has Bob Iger, who we like a lot and have grown to trust."

Though Disney is issuing $7.4 billion worth of stock, it's paying closer to $6.3 billion after factoring in Pixar's cash holdings of slightly more than $1 billion. Pixar shareholders will receive 2.3 Disney shares for every Pixar share they own, a move that will make Jobs the largest individual shareholder of Disney.

Pixar and Disney have had a long history together, though the recent past has been rocky. Pixar has had an uninterrupted string of hit features with "Toy Story," "Toy Story 2," "A Bug's Life," "Monsters Inc.," "Finding Nemo" and "The Incredibles." Disney has distributed all of them.

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However, talks to extend the deal turned sour, with allegations flying back and forth between Jobs, who is also Pixar's CEO, and Disney's then-CEO Michael Eisner. In January 2004, Pixar announced it was breaking off talks with Disney and would look elsewhere for a studio partner to release its films.

Things seem to have improved of late, though, as Disney has emerged as a major iTunes partner for Apple, with Jobs and newly installed Disney CEO Robert Iger appearing onstage at .

In addition to his role at the animation studio, Lasseter will serve as principal creative adviser at Walt Disney Imagineering, reporting to Iger, and will help design Disney theme parks.

The deal is subject to regulatory approval as well as the nod from Pixar shareholders, though Jobs owns 50.6 percent of Pixar. He has agreed to vote shares representing at least 40 percent of Pixar in favor of the deal--enough to push the deal through even if significant opposition arises, though none is expected.

Pixar's stock rose $1.43, or 2.48 percent, in after-hours trading, to $59. Disney's fell 5 cents, or 0.19 percent, to $25.94.

"New Yorker" media writer Ken Auletta, who has followed Disney for many years, compared the deal to Time Warner's merger with America Online. Both Disney and Time Warner represent venerable media companies that stumbled as their businesses went high tech, and looked to a native of the new media environment for help, he said.

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The Time Warner-AOL merger has been rocky, aptly illustrating the potential pitfalls of Old World-New World links. But Disney's decision to ally itself with Jobs could be a savvy choice, Auletta added.

"This is a guy who has an amazing track record over a long period of time," Auletta said. "He's not a one-shot wonder. If you can get Jobs on your team, and then make sure he has a stake in the company succeeding, that's a desirable thing."

The deal merges two opposites in the animation world: the historic leader in the art form, now grown into one of the biggest corporate entities in the world, and the high-tech trailblazer that former employees say has kept an intensely "family" feeling while creating a string of hugely popular hits.

"The great thing about working (at Pixar) is the directors are in-house," said Bobby Beck, a seven-year Pixar veteran who left in 2004 to start online animation school Animationmentor.com. "You really develop a relationship with the directors. They get to know you on a first-name basis."

That disparity could set the stage for a distinct culture clash between the large and the small.

Indeed, the prospect of the purchase has dismayed some fans of Pixar, who are wary of seeing the independent studio lose its spark of originality.

"Pixar is a remarkable place," said Doug Ward, the manager of the animation program at the University of California at Los Angeles. "The concern that we would have...is who's going to run it? Is it going to become another big corporate arm of Disney?"

Both Jobs and Iger said they would do everything they could to preserve the organic nature of Pixar's culture, however.

"Most of the time that Bob and I have spent talking about this hasn't been about economics," Jobs said. "It's been about preserving the Pixar culture--because we all know that's the thing that's going to determine the success here in the long run."

"We spent a lot of time talking about that when we negotiated the deal," Iger agreed. "I am really deeply committed to seeing that Pixar is allowed to exist in the form it has existed."

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