The Walt Disney Company & Pixar Inc: To Acquire or Not to Acquire Harvard Case Solution & Analysis

Problem Diagnosis

             Robert Iger had become the CEO of the company in the year 2005 of the Walt Disney Company. All of his attention was moved towards the famous animation studio known to be called as Pixar by then. Disney had been working with Pixar since the year 1991 and there are many hits in the market that have been produced by both the companies. Some of the famous hits include the Finding Nemo and Toy Story.

            Dream works was one of the rival studio of Walt Disney and due to this the animated film business for the studio of Walt Disney had been declining since Jeffrey Katzenberg had left Walt Disney and went ahead to establish the animated film studio of Dream works. Therefore, since then Walt Disney had been relying on the business from Pixar to generate the revenue from the partnership in order to maintain the current performance of the company. However, the Co-Production agreement that existed between Pixar and Walt Disney was about to end at the end of the year 2006.

            On the other hand, Pixar had started the search to look out for another distribution partner so that better terms could be negotiated with them. Now the main problem lied with Walt Disney which was that whether the management of the company risks to lose the business associated with Pixar. It was clearly evident and according to Bob Iger the importance of the animation business for Walt Disney was obvious. Therefore, many choices lie with Walt Disney now that are either to compete with Pixar acquire Pixar, form an agreement with another animation studio or negotiate a new distribution deal with Pixar.

Analysis 

Vertical Integration, Relationship specific investments & downstream free riding

            All the above terms along with their specific examples are described one by one below:

Vertical Integration

            Vertical integration strategy is basically a strategy which is pursued by any company that wants to move up or down within its entire supply chain. The company in this way acquires new portions of the entire value chain of the company. This strategy is highly recommended and beneficial when the suppliers and the buyers of the company have a strong power over the firm and they are becoming more profitable at the expense of the company. This leverage or this power could be avoided by the executives of the company once the company acquires these suppliers of buyers (Porter, 1980).

            In this way, the threat facing the company is removed completely. If the vertical integration strategy is considered along with the Porter’s five forces strategy then it could be seen that this strategy brings huge profit potential for the company (Mintzberg H. and Quinn, 1939). One of the examples is that when the Apple Company had opened its stores in the market bearing its brand. Another example is when eBay had purchased PayPal which was through a merger and acquisition. Therefore, it is evident that firms could pursue this strategy on their own. Today, if we talk about the most vertically integrated firms then the oil companies are the one that are implementing this strategy the most.

            For instance, some of the companies such as the Conoco Philips and ExxonMobil are involved in each and every stage of the complete value chain cycle including the operating of the gas stations, distribution of the fuel to the gas stations and the refinement of the crude oil into other useful products that could be sold to industrial customers such as the gasoline.

Although there are many advantages for a firm of integrating its business vertically however, there are also many risks associated with this strategy. For example if a firm integrates vertically then it might enter into completely different businesses where the firm does not have any expertise.

The Walt Disney Company & Pixar Inc To Acquire or Not to Acquire Case Solution

            Furthermore, there is also a risk that complacency could occur as a result of the vertical integration. For example, if we consider a case of an aluminum company which acquires a can company. Then the situation might arise when the people or the workers of the aluminum company might feel that they don’t need to worry about their jobs and whether they are doing a good job or not because the products that are produced would be used by the can company anyway...............

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