Disney splashes $7.4bn on Pixar buy

Walt Disney announced on Tuesday it's paying $7.4bn in stock to acquire Pixar Animation Studios - a deal that puts Apple 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 popularised by Walt Disney. The purchase is also the latest indication of a tectonic collision between technology and Hollywood.

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 VP 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 such as the one 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".

Jobs said on a conference call with investors: "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. They're the only company who has Bob Iger, who we like a lot and have grown to trust."

Though Disney is issuing $7.4bn worth of stock, it's paying closer to $6.3bn after factoring in Pixar's cash holdings of slightly more than $1bn. 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.

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 last year's launch of the video iPod.

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 per cent of Pixar. He has agreed to vote shares representing at least 40 per cent of Pixar in favour 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 per cent, in after-hours trading, to $59. Disney's fell 5 cents, or 0.19 per cent, 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 AOL. 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.

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.

He said: "This is a guy who has an amazing track record over a long period of time. 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 prospect of the purchase has dismayed some fans of Pixar, who are wary of seeing the independent studio lose its spark of originality. But both Jobs and Iger said they would do everything they could to preserve the organic nature of Pixar's culture, however.

Jobs said: "Most of the time that Bob and I have spent talking about this hasn't been about economics. 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."

John Borland writes for CNET News.com