When Steve Jobs swaps his Pixar shares for those of the Walt Disney Co., he'll be trading the most expensive stock in the entertainment sector for one of the cheapest.
After the market's close on Tuesday, Disney announced an agreement to buy Pixar in a stock-swap transaction valued at $7.4 billion. Under the terms of the deal, Pixar shareholders will receive 2.3 Disney shares for each share of Pixar. See full story.
As the animation studio's chairman and chief executive, Jobs is also the largest Pixar shareholder with control over about 60 million shares, or 50.6%, of the company's total shares outstanding, according to SEC filings. That stake will make him Disney's largest shareholder, according to data from Thomson Financial.
Pixar shares have risen more than 23% since a 2-for-1 split in April of last year. That has made the stock one of the strongest performers compared with rival entertainment companies. Disney shares have lost about 7% during that same time frame.
But Pixar's performance also has made the stock the most expensive in the sector. The Disney offer values Pixar at about $58.70, which is the range Pixar has been trading in for the last few days as rumors of a buyout have swirled around Wall Street.
At that price, Pixar trades at more than 84 times estimated earnings for the next year. That's a premium of nearly 70% over the company's average valuation over the last five years, according to Thomson data.
Disney, by contrast, trades at just 18 times estimated earnings for the next four quarters. That's about 30% below the company's five-year average.