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Q1. Outline the relevant trends in the entertainment industry in US for November

2005, which would imact the oerations of !alt "isney, #i$ar and their

relationshi.

%nswer& 'ollowin( were the trends in the entertainment industry&

1. )ncreased use of *echnolo(y& *here was a move from the +and "rawin(

%nimation to the omuter -enerated %nimation. *his not only heled to

reduce the costs to the various comanies, but also heled in creatin( "

e/ects which (ave the viewers a more life lie e$erience while watchin( the

animation movies. !ith #i$ar introducin( the enderan, arionette and

in(aster softwares, the animation industry was revolutionali3ed. )n fact,

the last 44 of the 4 movies which had won the Oscars for visual e/ects had

used the enderan software.

2. ovie 6conomics& %lthou(h the success of the movies were measured

throu(h their bo$ o7ce collections, the actual 8nancial success came throu(hthe other sources of revenue. Such sources included home video sales, ay

er view, video9on9demand on the cable channels and merchandise sales

includin( toys, aarel, boos etc. )nfact by 2005, the lar(est of the revenue

source of the movies was not the bo$ o7ce collection but home video. Since

the character related had lon( trails, revenue for a hit animated movie would

come in over many years.

omanies also started also focusin( brin(in( out se:uels as they were

another imortant source of revenues. )nfact, the se:uels of *oy Story, Shre

and )ce %(e (enerated between 0; and

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1. One of the maAor bene8ts of "isney?s ac:uistion of #i$ar is that animation

was inte(ral to "isney?s cororate strate(y because characters from the

animated 8lms drove retail in its theme ars and consumer roduct

divisions. %nd #i$ar?s trac record for roducin( smash hits was unmatched.

)nfact errill =ynch termed the ac:usition as a near strate(ic 8t. )f "isney

does urchase #i$ar, it would have to ay an enterrise value fee betweenCD.5 @illion and C.4 @illion, (iven that #i$ar?s maret caitali3ation is C5.ow valuation method, the

e$ected cash >ow would (row at 59D; in eretuity from 200D92015.

2. @y ac:uirin( #i$ar, not only would "isney (et one of the best animation

studios in the world, it would also hel it reduce it?c cost as they would not

have to ay various fees to #i$ar . %lso, the avera(e collection of #i$ar

movies was C5.B million comared to the C20. million earned by the

"isney movies. +ence, "isney could easily increase the avera(e bo$ o7ce

collections of its movies by ac:uirin( #i$ar.

. Not only with resect to the 8nances, but with resect to the human resource

that #i$ar would brin( alon(, would "isney be interested in ac:uirin( #i$ar.

)nfact some industry observers stated that the move would transform "isney

into the studio of the 1

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Q. @ased on the strate(ic analysis in :uestions 1, 2 and clearly mention whether

you would recommend the ac:uisition. -ive your rationale for the same.

%nswer& @ased on the analysis, it would be recommended that "isney should (o

ahead with the ac:usition. *he resons for this is that 8rstly, by ac:urin( #i$ar,

"isney would (et a vast ool of talent at its disosal. )nfact, industry observerscommented that the move would transform "isney into the studio of the 1

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has shown, this is more easier said than done. %dditionally, ost an

ac:uisition, many ac:uired comanies e$erience hi(h mana(ament

turnover because their emloyees do not lie the ac:uirin( comany?s

oeratin( ways E its structure or its culture. So if Hobs or =asseter left

#i$ar, it would be ossible that all the critical talent (oes with them.

+ence, "isney should (aurd itself a(ainst such a scenario.iiK omanies (enerally tend to over9estimate the otential economic

bene8ts from the ac:uistion. "isney should erform a comlete analysis

of the 8ancial (ains its looin( at by ac:uirin( #i$ar. %lready, "eutsche

@an seculated that "isney could mae D5 se:uels to the #i$ar hits for

the roosed CD.5 @illion urchase rice of #i$ar.iiiK %c:uisitions tend to be very e$ensive. )f "isney does urchase #i$ar, it

would have to ay an enterrise value fee between CD.5 @illion and C.4

@illion, (iven that #i$ar?s maret caitali3ation is C5.< @illion. %dditionally,

analysts believed that the a:uisition would be too e$ensive for "isney.

*he roAected #I6 ratio for #i$ar was 4D. )ts nearest rival, "ream!ors #I6

was in the 0s ran(e. )f "isney went ahead with the ac:uisition, it would

be nonsensical because it would be heavily dilutive with "isney tradin( a

#I6 of 1. %dditionally, if the creative talent at #i$ar waled out, "isney

would have bou(ht the most e$ensive comuter ever sold.ivK "isney should also erform ade:uate screenin( of #i$ar, ie, evaluate the

value9creatin( otential of #i$ar. esearch has shown that comanies

(enerally ac:uire 8rms without actually analy3in( the otential bene8ts.

"isney should analy3e if it can create more value by ac:uirin( other

emer(in( 8rms in the alifornia @ay %rea such as Orhana(e, !ild @ain

)nc and ritter#i$ )nc.