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Disney to Formally Weigh Purchase of Pixar Studios

A deal could be reached as early as Monday once the price and other details are worked out.

January 20, 2006|Kim Christensen and Richard Verrier | Times Staff Writers

Walt Disney Co. directors plan Monday to formally consider buying Pixar Animation Studios, whose success with such films as "Toy Story" and "The Incredibles" has redefined the animation genre Disney once dominated.

Disney Chief Executive Robert Iger and Pixar CEO Steve Jobs have been talking for months about extending their long-term distribution pact, which is due to end when Disney releases the computer animation studio's "Cars" in June.

The Times reported Jan. 5, however, that recent negotiations had expanded to include the possibility of Disney's acquiring part or all of Pixar, with Jobs taking a seat on the Burbank company's board and becoming a major shareholder.

A report in Thursday's Wall Street Journal that the talks had intensified further fueled speculation that a deal was imminent, sending Disney's stock higher, up $1.04 to $26.24. Pixar shares rose $1.61 to $58.87.

People familiar with the negotiations cautioned that key details remained to be worked out, including Pixar's price tag. Nonetheless, the two sides are widely expected to reach an agreement, possibly as early as Monday, because the deal is seen as benefiting both parties.

Disney would probably pay a premium to the Emeryville, Calif.-based company's current market value of nearly $7 billion.

The acquisition would be a major coup for Iger, who took over as Disney's chief in October and immediately turned his attention to repairing the company's fractious relationship with Pixar.

The companies had broken off negotiations in 2004 when Jobs clashed with Iger's predecessor, Michael Eisner. But shortly after Iger took over, he signaled a thaw in the relationship by appearing with Jobs to announce that television programs from Disney-owned ABC would be offered for downloading on Apple Computer Inc.'s video iPod.

By acquiring industry leader Pixar, Disney would immediately resume its perch at the top of an industry it pioneered with "Snow White and the Seven Dwarfs" in 1937 and dominated in the 1990s with such hits as "The Lion King" and "Beauty and the Beast."

Disney faltered in recent years with such duds as "Treasure Planet" and "Atlantis: The Lost Empire." Its latest release, "Chicken Little," has been a success, but its box-office performance has paled in comparison with "Monsters, Inc.", "Finding Nemo" and other Pixar hits.

For Jobs, selling Pixar could allow him to focus more on running Apple, which is enjoying the huge popularity of its iPod products. It also would make him even more of a media power player.

Some analysts have questioned how easily the companies' very different corporate cultures would mesh. Pixar is known for giving artists a wide degree of creative freedom that big Hollywood studios rarely grant.

Analysts also caution that a full acquisition could dilute the combined company's market value because Disney's shares sell at a much lower price-to-earnings ratio than Pixar's.

However, Pali Capital Inc. media analyst Richard Greenfield said in a research note Thursday that Jobs' becoming a major Disney shareholder and director "is likely to be viewed positively by the Disney faithful," mitigating the effect of such dilution.

"Investors may hope that Mr. Jobs' successful track record at Pixar and Apple will rub off more broadly on Disney," Greenfield said.

Standard & Poor's Equity Research downgraded shares of Pixar from "buy" to "hold." Its stock has risen more than 40% in the last four months, S&P said.

"We now see an inherent and potentially sizable takeover premium against the company's relatively small film library," S&P said. "We are also wary of a potentially negative investor reaction on the outcome of ongoing talks."

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Times staff writer Claudia Eller contributed to this report.

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