Disney buys Pixar Animation for £4.2 billion

The deal provides for Pixar’s creative heads Ed Catmull and John Lasseter to assume control over the world’s most famous cartoon studio, where Mickey Mouse was born. Pixar’s chief executive Steve Jobs, who also heads Apple Computer Company, will join Disney’s board of directors.

It is proposed that Disney’s animation studio, where the classic “Snow White” was conceived and made, will be combined with Pixar animation operations under Catmull’s leadership. However, the two companies will maintain separate studios.

The deal is similar to the one Disney had signed while acquiring ESPN cable sports network in 1996, said Disney’s chief executive Robert Iger.

Iger said he found it necessary to have a relationship with Pixar in order to take Disney animation to greatness.

Disney’s chief financial officer Tom Staggs told analysts that the company would continue to have double-digit earnings growth through 2008, when the Pixar deal is expected to become accretive. Pixar has over $1 billion in cash on its balance sheet, making the net value of the transaction about $6.3 billion, he said.

Boards of Disney and Pixar have approved the deal, which provides for 2.3 Disney shares for each Pixar share. Jobs owns a 50.6 per cent of Pixar, which would translate into about 6 per cent of Disney’s shares, which will mean he will be the largest individual shareholder in the company.

Jobs had bought the computer graphics division of Lucasfilm Ltd from Star Wars creator George Lucas in 1986 for $10 million, bringing along both Catmull and Lasseter. The unit later became Pixar. It has a continuous sequence of box office successes since then, which grossed more than $3.2 billion. These movies include Finding Nemo and Monsters Inc.

Catmull, currently president of Pixar, will become president of Pixar and Disney animation studios. Lasseter, under contract until 2011, will be the principal creative director of the Walt Disney Imagineering group, which designs theme park attractions.

Disney and Pixar had become partners in 1991 under a deal to share production costs and profits, with Disney distributing the films made by Pixar. The two companies had a second deal, but the relations somewhat soured in 2003 after Disney refused to allow Pixar to own the films it makes. However, when Iger became CEO in October last year, he persuaded Jobs to agree to the merger.

Jobs said Disney and Pixar can now collaborate without the barriers that come from two different companies and two different sets of shareholders.

Disney has been lagging behind in recent years as it failed to produce any blockbuster animated movies. Iger, who took over from Michael Eisner, who was at loggerheads with Jobs, has said a strong Disney depends on a strong animation department. He said along with this deal, he would look at other media platforms and international expansion.