DISNEY, PIXAR CHUMS AGAIN BOTH SIDES FINDING COMMON GROUND, WORKING ON DEAL.

Byline: Greg Hernandez Staff Writer

BURBANK - Pixar Animation Studios, once bitterly estranged from business partner The Walt Disney Co., could become part of the Disney fold again. Serious discussions are under way for the media conglomerate to buy the creator of such blockbusters as ``Finding Nemo,'' ``Toy Story'' and ``Monsters Inc.'' according to published reports.

Such a transaction could potentially be valued at $6.7 billion, according to a story Thursday in The Wall Street Journal. Analysts view it as a win-win for both companies, which have enjoyed a hugely profitable partnership set to expire later this year.

``I think it would be good for both sides in that it would allow the existing relationships with Pixar content and Disney distribution to continue,'' said Peter Jankovskis, director of research at Lisle, Illinois-based Oakbrook Investments LLC, which has more than 700,000 Disney shares. ``Certainly Disney wants to lock up what has been a very profitable relationship and shore up their in-house capabilities.'' Neither Disney nor Pixar have commented officially, but some details from what have been characterized as sensitive discussions have emerged.

A deal would propel Pixar Chairman Steve Jobs, also head of Apple Computer Inc., into a powerful position within Disney as the company's largest individual shareholder. But the deal's value, to be based on Pixar's stock price, is said to be among the sticking points.

Disney's motivation to buy Pixar is clear: The studio has never provided Disney with anything but an uninterrupted string of major box office hits dating back to 1995, with the most recent being 2004's ``The Incredibles,'' a smash both in theaters and on home video.

While Disney had some success with its CG-animated film ``Chicken Little'' last fall, its domestic box office returns ($132.9 million to date) did not come close to the success of a Pixar title. ``Finding Nemo,'' for example, was 2003's biggest hit, with a domestic gross of $339.7 million.

From Pixar's vantage point, not only has the Disney movie marketing machine proved to be a boon for its CG-animated films, Disney also holds the rights to develop sequels to all the Pixar films it has released, including the upcoming summer release ``Cars.''

``It would resolve a sticking point of who owns the copyright of pictures going forward, and that might still be somewhat of a sticky issue,'' Jankovskis said.

Katherine Styponias, entertainment analyst for Prudential Equity Group, LLC, said in a note Thursday that the deal would make sense both strategically and eventually financially for Disney, which she wrote would likely suffer a negative impact on its stock in order to acquire Pixar.

``We would be buyers of Disney's stock on such weakness,'' Styponias wrote. ``Pixar's track record suggests that it has arguably become the pre- eminent name in animation. We also believe that to the extent Steve Jobs would become one of the largest shareholders and likely a Disney board member, that this would benefit Disney, since we believe it is critical that media companies gain a greater understanding of technology and the impact it may have on their businesses. In our view, no company understands both technology and the consumer better than Apple.''

But in the short-term, talk of a possible deal got a positive reaction from shareholders Thursday as the stock price for both companies enjoyed a boost. Pixar's shares climbed $1.61 to close at $58.87 per share on the Nasdaq market, while Disney shares rose $1.02 on the New York Stock Exchange to close at $26.24 per share.

Styponias believes that whatever challenges Disney faces in acquiring Pixar would be surmountable and that one of the keys would be to preserve Pixar's creatively focused and independent culture within the larger company.

Such a deal could not have even been imagined two years ago when Jobs very publicly broke off talks with then-Disney CEO Michael D. Eisner, with whom he had a stormy relationship. Pixar announced itself open to a distribution deal with other studios once its Disney deal expired.

But a shareholder revolt against Eisner only weeks later changed the landscape dramatically, with Eisner being stripped of his chairman title in 2004 and retiring as CEO last September.

Eisner's successor, Robert Iger, made it an immediate priority to preserve the relationship with Pixar and informal talks began immediately after his appointment as CEO-elect last June.

``We believe that Bob Iger is open to changing existing business models and has also demonstrated that he is able to work well with executives with strong personalities,'' Styponias wrote.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com

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(1 -- color) Pixar, creator of such films as 2003's blockbuster ``Finding Nemo,'' is in talks to continue its partnership with Disney.

Pixar Animation Studios

(2 -- color) Disney may be close to buying Pixar, the animation studio that has produced such hits as ``Toy Story 2,'' the sequel to an earlier Pixar-Disney blockbuster.

Disney/Pixar