Pixar shareholders will get 2.3 shares of Disney stock in exchange for their Pixar stock. Pixar trades at $60 or a little less, Disney trades at $25 or a little more. So, 2.3 shares of Disney stock are worth roughly exactly what Pixar shares are worth. So, what's in it for the shareholders? Acknowledging that past performance does not predict future performance, let's look at the 10-year history for these stocks:
Disney:
Pixar:
Over the last ten years, notwithstanding the 2001-ish "non-recession," Pixar has grown on average 11% a year. Disney's average is half of that.
Of course, the realistic answer is that there doesn't have to be anything in it for the shareholders. Steve Jobs owns 50.6% of the company. Pixar is a California corporation, and according to its SEC filing, has the authority to merge with a majority vote of the shareholders. So, Mr. Jobs votes and all is well. No premium for all shareholders is necessary. So, what's in it for Mr. Jobs? Well, have you looked at the iTunes site lately? When I received my iPod in December, the video offerings at iTunes (owned by Apple, run by Mr. Jobs) were few and mostly ABC television shows. Disney owns ABC. When I looked yesterday, I noticed that 10 Disney short films had been added, as well as 7 Pixar shorts that Disney distributed. To be fair, iTunes also has some Viacom programming (MTV shows, Comedy Central shows, and Nickelodeon shows), but the site is looking a lot more Disney these days.
Bottom line, the deal may end up being very good for Mr. Jobs, who will be a Disney director and 6% shareholder, and for Apple, but not much of anything for the average Pixar shareholder. Because of the liquidity of the Disney shares, it's a wash -- shareholders will have something worth roughly $60 either way that can be sold and reinvested. But there is the possibility that they could have gotten more.
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1. Posted by Cassandra on January 27, 2006 @ 10:33 | Permalink
In the world of deals, Pixar s/h should be over the moon. No one would pay cash for PIXR because while it's historical growth has been attractive, its hisotrical share price growth has been far more atractive. This means it will be well-nigh impossible to generate the real growth necessary to satiate the expectations built into the stock price appreciation.
Though DIS shares are not cash, they are liquid and because PIXR is small relative to the behemoth Disney, PIXR s/hdrs should be able to realize their [inflated]value.
I would add that while DIS stock has languished, many of the reasons for its langsuishing are due to its market cap, indsutry factors (see NewsCorp) that have seen "content in disfavor, and myopic earnings pessimism. As such, DIS probably affords much better forward risk vs. return than PIXR, - here, now, today - and one might argue, even more so with the charismatic Mr Jobs on the errr job.
2. Posted by gundryggia on January 28, 2006 @ 19:05 | Permalink
"Pixar trades at $60 or a little less, Disney trades at $25 or a little more. So, 2.3 shares of Disney stock are worth roughly exactly what Pixar shares are worth."
A few traders are actually smart enough to do division, so if PIXR/DIS is not very close to 2.3, that reflects doubt that the deal will go though at the current price. After the deal was finalized, the two stocks started moving in tandem: http://finance.yahoo.com/q/bc?t=5d&s=PIXR&l=on&z=m&q=l&c=dis
Also, Cassandra is correct--Pixar had VERY high expectations embedded in its valuation before the buyout. If they had ever put out a flop, they'd have been f****d.
3. Posted by gundryggia on January 28, 2006 @ 19:20 | Permalink
Just to clarify, the previous post addresses the notion that PIXR being correctly valued, today, indicates that Disney paid no premium for Pixar. (It doesn't seem some shareholders got as large a premium as they wanted, judging from the Yahoo PIXR message board!)
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