Disney Mergers and Acquisitions

TO:  Bob Chapek, Disney’s CEO

FROM: Ibrahim AbdelMoteleb, Coursera student

DATE: August 21, 2020

SUBJECT: Mergers and acquisitions

 

Forms of growth and expansions such as mergers, acquisitions, and strategic alliances are vital to organizations in today’s ever-changing business environment. Keeping up with all the changes in technology, culture, economics is impossible to be done by a single organization.

Mergers and acquisitions help organizations access new markets and technologies and overcome competitive disadvantage. 

Mergers and acquisitions are not an easy process; starting with identifying proper targets and ending with trying to capitalize on the merger to reach synergies, the latter being the most critical. The three-part test is a good way to determine whether the merger or acquisition is a good one or not.

Disney have a good history with M&As as it helped Disney to reinvent itself and keep growing. Disney started out as an animation studio and grew to the world’s second-largest media conglomerate. Disney started this by opening theme parks and resort then started making products on merchandise based upon its famous characters. Thanks to Disney’s business model, an animation character ripples down to every part of the business. Starts in a movie then passes by music, TV, video games, consumer product and so on, this is known as the ripple effect which what made Disney the empire it is now.

Disney started to hit a slump when it couldn’t keep up with the animation technology and kept using obsolete hand drawing artists and failed to create new attractive characters to milk. Bob Iger realized this and started working with other organizations to recover from this competitive disadvantage forming some sort of a strategic alliance with Pixar which ultimately lead to a full-on acquisition.

The acquisition of Pixar was very needed as Pixar was outperforming Disney in creativity and animation technology. Bob Iger had to put a ring on it to secure this alliance. This acquisition revitalized Disney studios as Disney didn’t only acquire the technology but also the creative mindset of Pixar. It ultimately led to the huge ripple effect of the movie Frozen.

The wheel didn’t stop, Bob Igor saw how Pixar managed to push Disney forward and realized how M&As is a skill that can be improved with practice and how impact they are and decided to acquire Marvel studios. Marvel was not for the technology this time, but it was for the huge intellectual property and rights. It gained access to over 5000 characters and access to teenage boys’ demographics. This was not a stretching strategy only but also a leverage strategy; Marvel proceeded to dominate the box office and released 9 movies in 7 years, 4 of them hit the 1 billion mark. Disney only paid 4.2 billion for this acquisition. Disney repeated the same feat with Lucasfilm, acquiring the intellectual property and the special effects technology.

These acquisitions managed to generate Dinsey in 2016 more than 5 billion from movies alone. One movie from each studio:

• Disney Animation Studio: Zootopia ($1.024 billion)

• Pixar: Finding Dory ($1.026 billion)

• Marvel: Captain America: Civil War ($1.132 billion)

• Lucasfilm: Star Wars: The Force Awakens ($2.066 billion)

As can be seen, Pixar revitalized the animation studio and Disney turbocharged it with Marvel and Lucasfilm.

Disney need to keep acquiring more studios for more intellectual property, Disney’s ripple effect multiplies revenues in an extreme way.

However, I believe that Disney should keep these studios with separate management and avoid fully integrating it with Disney for several reasons. Disney needs to avoid threatening the talents of the acquired studios, and to keep their creativity going.

The acquired studios may not have the same family-friendly mentality of Disney's movies, but I think that Disney should encourage that and realize that it has to diversify to appeal to several demographics and grow more. 

 

 

In addition, I believe that Disney should do some backward and forward vertical integration in industries such as the toy manufacturing, construction, and music industry so it can cut down on costs and be able to have more leverage and flexibility.

 

 

 

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