Disney to buy Pixar for $10.8 billion

LOS ANGELES - The Walt Disney Co today said it would buy Pixar Animation Studios in a US$7.4 billion (NZ$10.8bn) deal that gives Pixar animators creative control over the world's most famous cartoon studio and make Pixar CEO Steve Jobs Disney's largest individual shareholder.

Under the agreement, expected to close this summer, Jobs, who also heads Apple Computer Inc, will join Disney's board of directors.

Disney also will surrender control of its world-famous animation studio, the birthplace of Mickey Mouse, to Pixar creative chiefs, Ed Catmull and John Lasseter. Disney's animation studio, the birthplace of classic "Snow White", will be combined with Pixar animation operations under Catmull's leadership but the two will maintain separate studios.

That hands-off management arrangement is similar to the one Disney adopted with Bristol, Connecticut-based ESPN cable sports network, which Disney acquired in 1996, Disney Chief Executive Robert Iger said.

Pixar's six films with Disney, including "Toy Story," "Finding Nemo" and "The Incredibles," have grossed more than US$3.2 billion.

"As I considered the possibility of returning Disney animation to greatness, it was clear to me that maintaining a relationship with Pixar was essential," Iger told analysts on a conference call.

Jobs said he and Iger spent the bulk their discussions addressing how to preserve Pixar's free-wheeling creative culture, which both described as the key to its unbroken box office success.

Chief Financial Officer Tom Staggs told a conference call with analysts that Disney aimed to continue double-digit earnings growth through at least 2008, when the Pixar deal probably becomes accretive. Disney's board also increased the company's stock buyback plan by 225 million shares, and Staggs said Disney expected to buy back about US$5 billion or more in the next 12 months.

Pixar has over US$1 billion in cash on its balance sheet, making the net value of the transaction about US$6.3 billion, Staggs said.

Both boards of directors have approved the deal, which calls for 2.3 Disney shares to be issued for each Pixar share.

Jobs owns a 50.6 per cent stake in Pixar shares, which would translate into about 6 per cent of Disney shares after the deal.

"You're issuing 13 per cent of Disney (stock) to buy a company that has a good record but a small company," Mario Gabelli, chief executive of GAMCO Investors Inc, said on Tuesday as the deal was being finalized. "I'm in the camp that says it may not be that necessary," he said, adding that he was bullish on the combination of the companies.

But Soleil-Media Metric analyst Laura Martin described the new alignment between Disney with Jobs' other company, Apple Computer Inc as "tremendous."

"The value created by having Steve Jobs on the board of Disney is far higher than the premium that Disney is paying for Pixar," Martin said.

Jobs, who is also chief executive of Apple, bought the computer graphics division of Lucasfilm Ltd that became Pixar from "Star Wars" creator George Lucas' in 1986 for US$10 million -- inheriting both Catmull and Lasseter in the deal.

Catmull, who is currently president of Pixar, will become president of Pixar and Disney animation studios.

Lasseter, under contract until 2011, will also become the principal creative director of the Walt Disney Imagineering group, which designs theme park attractions.

Disney and Pixar first became partners in 1991 under a deal to share production costs and profits, with Disney distributing the films. The companies cut a second deal but talks on a third agreement broke down in 2003 over what Jobs described as Disney's refusal to allow Pixar to own the films it makes, including the last two films in the current deal.

But Iger pursued Jobs after becoming CEO last October, pledging that "animation is, and will remain, at the heart and soul of Disney."

Disney shares fell 9 cents to US$25.90 and shares of Pixar rose US$1.53 or 2.7 per cent to US$59.10 on Inet following the announcement.

- REUTERS