The Acquisition of Pixar by Disney

The Acquisition of Pixar by Disney

In 2006, Disney completed its acquisition of the film animation company Pixar for US $7.4 billion. The high purchase price reflected Disney’s eagerness to gain Pixar’s animation capabilities, its talent, and its culture of creativity. Despite the numerous advantages that Disney is likely to acquire from this acquisition, there are risks that it is likely to encounter as it tries to achieve the goals of this acquisition.

One of the risks faced by Disney as it tries to achieve the goals of this acquisition is the failure of creation of the expected synergies from the acquisition (What are the Risks Associated with Acquisition and New Product Lines and Markets 2). For instance, the talents from each side may fail to combine successfully. Often, talents from two rivals or competing companies may have difficulties co-existing together. Sometimes, talents from one company, especially from the acquired firm, usually opt out of the acquisition by quitting their jobs. In addition, if the structural and cultural systems of the two firms are different, employees might find it difficult to maintain cohesiveness and teamwork (What are the Risks Associated with Acquisition and New Product Lines and Markets 2). When this happens, the success and the production of the newly established venture are ultimately disrupted.

The acquisition brings along a lot of change in the way business is conducted, how customers are handled, and how activities are scheduled and undertaken. Disney is likely to face the risk of resistance to change (What are the Risks Associated with Acquisition and New Product Lines and Markets 3). It is generally known that people within businesses do not like change. This implies that Disney is not only likely to face employees’ resistance to change, but it is also possibly that they might face suchlike resistance from other business stakeholders, such as the customers and suppliers. Strong resistance to change from all the stakeholders brought about by the acquisition is very risky because Disney stands to lose its market power as its business stakeholders shift to other places where there are no changes taking place.

Another risk that Disney stands to face is the risk that the projected sales level, profit margins, and return on the investment for the newly established business might not be generated within the given period (What are the Risks Associated with Acquisition and New Product Lines and Markets 4). This risk is likely to affect the company’s capital structure because it may be forced to utilize borrowed capital to finance its working capital and other capital needs. The extensive use of borrowed capital can result in financial problems, such as the bankruptcy or receivership. In addition, another financial risk that Disney is likely to encounter as it tries to achieve its acquisition goals is the rise in unexpected or uncertain events and liabilities (What are the Risks Associated with Acquisition and New Product Lines and Markets 4). These are likely to constrain the acquisition budget, causing the company to rely on the borrowed capital to finance these events and meet the uncertain liabilities, which as earlier mentioned, can result in negative financial implications.

Disney’s product line is relatively different from that of Pixar. Disney’s main business operation is film production and distribution while Pixar’s main business operation is film animation. Given the divergent nature of the two companies’ business operations, Disney stands to face a risk that the new business operations may require marketing, financial, and production strategies that are different from those it employs in its operations. Consequently, Disney may have to develop new marketing and financial strategies, which integrate its business operations and those of the acquired company. This can be more risky if the acquired firm has substantial foreign operations.