On January $24,2006,$ Walt Disney Studios announced that it would acquire Pixar in a stock deal worth $$7\mathrm{.}4$ billion$\mathrm{.}1$ Robert $[$ger$,$ Disney's CEO, said, "I want to return Disney to greatness in this area and this was the way to do it fastest. The deal was valued at $559\mathrm{.}78$ per Pixar share $-$ a $3\mathrm{.}8\%$ premium over Pixar's $$57\mathrm{.}75$ close price $($given Disney's issuance of $2\mathrm{.}3$ shares for each share of Pixar, Disney's close price of $$25\mathrm{.}99,$ and Pixar's $51$ billion in cash$).$ Pixar's shareholders approved the acquisition in May $2006.$ Many in the investment community believed that while the deal would be dilutive for the first two years, strategically, it made sense.

Steve Jobs, with a $7\%$ stake, became Disney's largest shareholder. Edwin Catmull, Pixar's president, was selected to preside over both Pixar and Disney animation facilities. John Lasseter, former executive vice president at Pixar, was named chief creative officer of the joint studios and principal creative adviser of Walt Disney Imagineering, reporting directly to Bob Iger

Iger said, $\text{'}$I$\text{'}$m sensitive to what can happen when a company is bought" and emphasized that "the Pixar culture be protected and allowed to continue."S He agreed to an explicit list of guidelines for protecting Pixar's creative culture. Pixar became a subsidiary of Disney and would continue to operate under its own name out of its animation facility in Emeryville. Pixar employees were not required to sign employment contracts and could even keep their Pixar health plan, which was reportedly more generous than Disney's $($See Exhibit $1).$ Pixar did some bending of its own, which included softening to the idea of sequels and direct$-$to$-$DVD animated films.? As part of the arrangement, Pixar took ownership of making its own sequels. Iger said, "While Disney can make them, Pixar making them is totally different."

At the time of the acquisition, Disney's animation studio was down but not out. Lasseter remarked, "I was a little nervous when we went down to Burbank for the first time because I wasn't sure exactly what we'd find. We found some things that needed to be changed, but I was relieved to find many young animators totally excited and into the idea of working at Disney."#$1$ Catmull and Lasseter imported many of the elements that tueled Pixar's creative culture. They overturned the "top$-$down development" process in place at Disney and infused Pixar's spirit of collaboration. To that end, they set up 'The Story Trust,$\text{'}$ modeled after the famed 'Brain Trust,$\text{'}$ and also opened up areas within Disney's Burbank facility to increase the likelihood of chance encounters among the expanded team.

But integration wasn't all smooth$-$sailing, as exemplified by the story of "Bolt." Already under production at Disney as "American Dog$/"$ Lasseter, unhappy with the film, fired the director and had the team rework the movie from scratch to become "Bolt.

Initial rough patches aside, the combination has fared remarkably well. Catmall said, $"$It took about a year before there was a collective letting down the suard, but that, we've never had to go back and look at it$.$ Everything $($Disney$]$ said they would do they have lived up to$.$"I Said David Price in his book, The Pixar Touch, "Most acquisitions, particularly in media, are value$-$destroving as opposed to value$-$creating, but that certainly has not turned out to be the case here.

Meanwhile, Disney continued its d'empts to revive its own animation studio. It released "Bolt' on November $21,2008,$ in time for the l$$crative Thanksgiving holiday weekend. Peter Sanders of The Wall Street Journal said, $"$If Disney's own animators can begin producing hits again $-$ creating new opportunities for related toys and other merchandise $-$ it would complement Pixar's success and justify Disney's decision to maintain two separate animation facilities since the Pixar acquisition. $"$

And everything came full circle. WALL$-$E$,$ Pixar's latest release, was a hit in summer $2008$ and won the Oscar for best animated film. Later that year, it was reported that Pixar management was working on bringing back hand$-$drawn animation$\mathrm{.}17$ Said Iger, "You can accomplish a lot more as one company than you can as part of a joint venture. It makes a big difference when everyone is working for the same set of shareholders. Please read the case attached above and answer the following questions in a short PowerPoint presentation.

$1.$ Conduct a SWOT Analysis on Disney $($identity strengths, weaknesses, opportunities, and threats

$2.$ Identify the primary competitive advantage$($s$)$ of each company

$3.$ List the primary challenges faced by the new CEO

$4.$ Do you believe that the balance of power resides with Disney or Pixar?

$5.$ List the Pro and Cons to an M&A transaction

$6.$ Do you believe that Disney & Pixar should combine or continue to operate independently under a contractual agreement?