Pixar, Disney keep investors on the edge of their seats
Wall Street Journal (Post-Gazette) - 12/15/05

Pixar, Disney keep investors on the edge of their seats

As the courtship between Pixar Animation Studios and Walt Disney Co. drags on, some investors and analysts have started wondering whether a future partnership could be deeper than a straightforward distribution deal for Pixar's movies.

For months, the companies have been in talks about continuing one of the most successful partnerships in the entertainment industry, which dates back to 1995's "Toy Story," the pioneering computer-animated movie that was the first of six major hits created by Pixar. Under the current deal that expires with next June's "Cars," Disney co-finances Pixar's movies, and the companies equally split film profits after Disney takes a distribution fee and is compensated for marketing and other costs.

Having established a stellar track record, Pixar has been seeking a more lucrative deal that would involve Pixar picking up all the production costs of its movies and simply paying Disney a distribution fee.

There is another, more fanciful, theory buoying Pixar's share price, though: Disney could buy Pixar and make it, in effect, Disney's animated-film division. That idea has been floated in recent research reports, including several by Credit Suisse First Boston analyst William Drewry, who doesn't own any Pixar shares and has an outperform rating on the stock. Mr. Drewry further speculated that Pixar's chief executive, Steve Jobs, could become a member of the Disney board and a significant shareholder in the media giant. CSFB has provided investment-banking services to Pixar of Emeryville, Calif.

According to people familiar with the talks, Pixar and Disney of Burbank, Calif., are still toying with a broad range of options. For instance, these people say, one idea that has been kicked around by the companies is that Pixar could sell Disney a minority stake or give Disney a participation in the performance of its movies in exchange for sequel rights to Pixar's existing library of films, including "Finding Nemo" and "The Incredibles." It has long irked Mr. Jobs that Disney controls the sequel rights to his movies. However, such an option would be complex to pull off.
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