DISNEY BUYS PIXAR STOCK DEAL FOR $7.4 BIL.

Byline: Greg Hernandez Staff Writer

BURBANK - Once on the brink of a corporate divorce, The Walt Disney Co. formally announced Tuesday it is buying its once-estranged business partner Pixar Animation Studios for $7.4 billion in a landmark all-stock deal.

Disney CEO Robert Iger, Pixar Chairman Steve Jobs and other executives met with Pixar employees Tuesday afternoon at Pixar's headquarters in Emeryville to announce the deal, which had been expected for several weeks.

Pixar has been Disney's biggest supplier of hit films over the past 15 years with an unbroken string of hits consisting of ``Finding Nemo,'' ``The Incredibles,'' ``A Bug's Life,'' ``Toy Story,'' ``Toy Story 2,'' and ``Monsters, Inc.'' Disney is scheduled to release the latest Pixar film, ``Cars,'' on June 9.

``Nobody could offer us what Disney could,'' Pixar Chairman and CEO Steve Jobs said during an afternoon conference call. ``We have seven children together and keeping the family together is really one of the nice parts of this relationship.''

Under terms of the agreement, expected to be completed this summer, 2.3 Disney shares will be issued for each Pixar share.

Tuesday's deal would have seemed impossible just two years ago when Jobs, also CEO of Apple Computer Inc., very publicly broke off talks with then-Disney CEO Michael D. Eisner, with whom he had a notoriously stormy relationship. Pixar was only committed to partner with Disney through 2006 and announced itself open to a distribution deal with other studios.

But a shareholder revolt in March 2004 changed the landscape dramatically, with Eisner being stripped of his chairman title and, last September, retiring as CEO. Iger made it an immediate priority to preserve the relationship with Pixar and informal talks began after his appointment to CEO-elect in June.

``We've watched Pixar create some of the most memorable high-quality films ever of this genre,'' Iger said. ``That relationship was about to end. As I considered all the different possibilities, it was clear to me that maintaining a relationship with Pixar was essential. Over the last few months, it came to fruition.''

Jobs, who will be appointed to Disney's board of directors, said with its current agreement with Disney about to expire, Pixar ``saw a fork in the road.'' He said the only other option was to enter into an agreement similar to that of ``Star Wars'' creator George Lucas that would have Pixar creating films independently and having a distribution deal with a studio.

``The more we thought about becoming part of Disney and being able to make our films without being two independent companies with two independent agendas and being able to leverage those assets through Disney's incredible array of distribution channels,'' Jobs said. ``We can get rid of all the stuff that has nothing to do with making the movies and we can focus on making the movies, which is what Pixar does best.''

The acquisition brings to Disney the creative teams behind the popular original Pixar blockbusters and they can now be involved in future development of these properties, including potential feature animation sequels.

If Pixar had split from Disney, Disney still retained the rights to develop sequels to the movies it had already released under the distribution agreement.

``If there are going to be sequels, we'll get the chance to make them,'' Jobs said. ``I think we have some feelings about what sequels we would like to be made. The way we approach these sequels is sort of looking at ``Godfather: (Part) II'' or ``(The) Empire Strikes Back.' We don't see sequels as second-class citizens, we see them as first-class citizens.''

Pixar President Ed Catmull will serve as president of the new Pixar and Disney animation studios, reporting to Iger and Dick Cook, chairman of The Walt Disney Studios.

Both Disney and Pixar animation units will retain their current operations and locations. Pixar Executive Vice President John Lasseter will be chief creative officer of the animation studios, as well as principal creative adviser at Walt Disney Imagineering. Lasseter will contribute to the design of new attractions for Disney theme parks around the world and will report directly to Iger.

While Disney had some success with its computer-generated 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 typical Pixar title. ``Nemo,'' for example, was 2003's biggest hit with a domestic gross of $339.7 million.

The purchase of Pixar gives Disney the ability to fully capitalize on Pixar-created characters and franchises on video games and broadband and wireless technology, as well as in its theme parks, consumer products and live stage plays.

Directors of Disney and Pixar have approved the transaction, which is still subject to federal approval, but the agreement still requires the approval of Pixar's shareholders.

The deal was announced after the close of the markets Tuesday. Disney shares had risen 47 cents to close at $25.99 on the New York Stock Exchange, then dropped by 14 cents in after-hours trading.

Shares of Pixar had risen by $1.43 to close at $57.57 on Nasdaq but dropped by 70 cents a share after hours.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com

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