The merger that made Mickey Mouse and Nemo the corporate cousins!

Mergers & Acquisition.

When we talk about M&A, there are possibly so many thoughts that come together. All at once.

Economies of scale. Greater resources. Better R&D.

When T-Mobile merged with Orange in the UK, they justified the merger on the grounds that:

“The ambition is to combine both the Orange and T-Mobile networks, cut out duplication, and create a single super-network. For customers, it will mean a bigger network and better coverage, while reducing the number of stations and sites – which is good for cost reduction as well as being good for the environment.”

Back in 1999, when Exxon and Mobil merged to form ExxonMobil for an $81 billion agreement, not only making it the largest company in the world but also making the Federal Trade Commission work harder to avoid monopolization by the massive restructuring it had to undertake of the Exxon and Mobil’s gas stations.

That’s how big and impactful M&A transactions can be. For most of us, it would be very hard to imagine the scale of impact!

No wonder, therefore, that lawyers who deal with such M&A transactions are also the best-paid lawyers in the industry. If the subject matter of your work is so valuable, some of the value naturally percolates to you.

You can see headlines about companies being bought or sold, listed companies being taken private, startups raising investments in millions of dollars and banks pooling together capital to give loans worth thousands of crores.

M&A, banking, and investment law are glamorized by TV series like Suits, where M&A lawyers like Harvey Specter and Mike Ross and banking lawyers like Louis Litt face it off for high stakes corporate battles!

M&A, investment and finance transactions are the bread-and-butter of corporate law firms. Even companies that are going to get into M&A activities soon, do hire M&A and investment lawyers. Successful M&A and finance lawyers can make difficult transactions happen smoothly, are paid handsomely and are part of news-making deals.

Ok, Ok, I am coming back to the title, now. 

Yes, Mickey Mouse and Nemo are corporate cousins!

Want to know how that happened?

The acquisition goes back to 2006. When Disney bought Pixar in a $7.4 billion deal!

Pixar, back then, was headed by legendary Steve Jobs, founder of Apple and the inventor of iPhone and iPad. 

Until the deal, Disney was releasing all of Pixar's films. But the companies' distribution deal was set to expire following the release of Cars in 2006.

The merger brought together Disney's historic franchise of animated characters, such as Mickey, Minnie Mouse, and Donald Duck, with Pixar's stable of cartoon hits, including the two "Toy Story" films, "Finding Nemo" and "The Incredibles". 

At the time of the merger, Disney was “demoralized” and “failing as a company”.

Disney was seeing its stock price stagnate in 2005 as investors flocked to more rapidly growing digital media firms such as Apple as well as search engines like Google. The acquisition of Pixar could help Disney increase revenue throughout all of its business lines.

Pixar, on the other hand, was doing immensely well. All the 6 movies namely Toy Story(1995), A Bug’s Life(1998), Toy Story 2(1999), Monsters’ Inc.(2001), Finding Nemo(2003), The Incredibles(2004), and Cars(2006) were box office smashes!

Did you ever know that Steve Jobs was ever in the movie business? Well, now you know.

Pixar had a stellar record. Jobs had taken the company to new heights year after year.

They were known to be the technological pioneers in the field of computer animation. 

It took them years of R&D to release the world’s first computer-animated feature film in 1995 - Toy Story.

Steve Jobs, as a part of the deal, also became the board member of Disney. While speculations were being raised for the Disney-Pixar team up across the industry, Steve Jobs, in an interview, said this:

"Disney and Pixar can now collaborate without the barriers that come from two different companies with two different sets of shareholders. Now, everyone can focus on what is most important, creating innovative stories, characters, and films that delight millions of people around the world."

The current picture:

Disney is now uber-successful, having shrugged off all signs of stagnation and Pixar has major issues that it is facing on a day to day basis. There have been bad decisions at upper levels, too many layers of middle management and too much second-guessing. 

What have been the issues of conflict?

Pixar had market goodwill of famously being a filmmaker-driven studio, where animators and artists collaborated on creative decisions. 

On the contrary, Disney was run by managers, executives, and accountants. 

The Disney-Pixar union was aimed to be mutually beneficial. Pixar could afford to finance two films a year post-merger rather than just one with the marketing and promotional power of Disney behind it.

Then what went wrong in the deal that led to the sudden fall from grace of Pixar?

1.Disney has been keen on merchandising and marketing Pixar characters. So, when Disney decided to open a Toy Story Midway Mania, a year after acquiring Pixar, in the lines of Disney theme parks, the same did not receive much excitement from the public. 

Why would that happen with Pixar, whose movies had been receiving a phenomenal response?

Well, the theme parks call for an awareness of the theme. Pixar failed to deliver the sequels as there was no Cars 4 or a Finding Nemo 2. The theme thus faulted.

2. Since the sequels required a lot of time and investment, Disney decided to push the production by making direct-to-video sequels. Pixar did not agree to it since they just wanted to produce extremely good quality sequels which took time. 

Clearly, there was no meeting of the minds about the long term goals of the acquisition!

What happens in such situations when the two entities do not work well together post-merger?

Well, that depends on how the lawyers have drafted and negotiated the agreement of course!

Many mergers like Disney-Pixar have been undone in the past, based on provisions of the agreements that were signed by parties. Disney may find value in hiving off Pixar someday, or sell it to another company, as well. That would require getting enough shareholders to agree to a deal. And that deal will have to be drawn up and negotiated by some very well paid lawyers.

If you want to be an M&A Lawyer, a few points you’d surely need to keep in mind while drafting for M&A deals are:

• Do you understand the key interests of an acquirer of the company who is your client, or even the opposite party?
• Can you align the deal structuring, execution, and implementation of M&A and institutional finance transactions that could help the deal go through, and address concerns of all parties involved to make it happen?
• Can you articulate the commercial logic and business intent of your client when he or she is contemplating a transaction and identify a suitable way forward? Can you bag mandates and perform different kinds of billable tasks?
• Can you as a lawyer hired by your client ensure procedural requirements and stakeholder alignment necessary as per law are obtained? In other words, do you know what are the deal compliances?
• Do you know the relevant company law provisions, or understand corporate governance well enough to work with Shareholder Agreements at this level?