Barely four months into his tenure, Disney CEO Robert Iger has made a bold and possibly suicidal move. Today, Disney announced it would spend $7.4 billion in stock to acquire Pixar, the animation studio that made blockbusters such as Toy Story; Monsters, Inc.; Finding Nemo; and The Incredibles.
The sale removes a major uncertainty from Disney’s agenda. The deal under which Disney co-produces and distributes Pixar movies was set to expire, and Michael Eisner and Pixar CEO Steve Jobs had been unable to come to terms for renewal. Iger, Eisner’s successor, signed the check in weeks. By owning Pixar, Disney will have a free hand to do what it used to do better than anybody else: create and sell proprietary kid-friendly content across a range of platforms, from movies to theme parks. And it adds major talent. Pixar President Ed Catmull will serve as head of Disney’s new combined animated division. More important, Disney has acquired the services, reputation, and vision of one of the true original minds in American business. Steve Jobs, the founder and chief executive officer of both Apple and Pixar, will join Disney’s board.
But the move carries risks, far beyond the fact that Disney is now committing more funds to the fickle film business. By acquiring a company with a charismatic, legendary, youngish CEO, Iger at the very least may have made his own job more difficult. At worst, he may have acquired himself out of a job. It’s happened in the past.
In the mid-1990s, veteran executive Michael Jordan (not the Michael Jordan you know) aimed to transform Westinghouse from a boring industrial company into a sexy media company by buying CBS and Infinity Broadcasting. When he acquired Infinity in 1997, Jordan also acquired the company’s CEO, Mel Karmazin, a savvy operator beloved by Wall Street. Within months of his arrival, as Alan Deutschman wrote in New York in 1998, Karmazin grabbed power and muscled out rivals. By the end of 1998 Jordan was gone.
When J.P. Morgan Chase acquired Bank One in the summer of 2004, part of the deal was that Bank One CEO James Dimon would ultimately take over from J.P. Morgan Chase CEO William Harrison in two years. Once the deal closed, however, the clamor for the cost-cutting Dimon to take over sooner rather than later started to build. Last fall, the bank announced that Dimon would become CEO at the end of 2005, six months ahead of schedule. Dimon was taking a play out of the book of his longtime mentor Sandy Weill, who performed a similar drill on Citigroup CEO John Reed. When Citigroup and Weill’s company, Travelers, merged in 1998, the two men agreed to run the combined firm as co-chief executives. By April 2000, Reed was gone.
The danger for any acquiring CEO is that the acquired CEO will have more credibility and a better track record and thus be able to function as a shadow CEO. And on this point, Iger certainly has grounds for concern. After the deal, Jobs will become a member of Disney’s board. Jobs has more entrepreneurial, managerial, and Wall Street credibility than anybody at Disney. (How many other executives have built multi-billion-dollar stakes in two companies from scratch?) Jobs owns 60 million shares of Pixar, a bit more than half the company, which means he’ll wind up with 138 million shares of Disney, about 6 percent of the company. That would dwarf the holdings of today’s largest Disney shareholders.
Meanwhile, even with a big deal like Pixar, Disney will still be Disney—a big company that operates in difficult industries like movies, broadcast television, radio, and theme parks, and has had problems with its retail operations. Its portfolio includes some great businesses, such as ESPN. But its assets have rarely clicked at the same time, which is one of the reasons Disney’s stock stands roughly where it did 10 years ago. And Iger will be still be Iger, a longtime No. 2 who is still feeling his way into the No. 1 role, the sober, conciliatory, nonvisionary manager that Disney needed after two decades of the dramatic, pugnacious, visionary Michael Eisner.
The acquisition may be sold as a win-win deal for shareholders of Disney, who get some security about future Pixar films, and for Pixar shareholders, who are getting a slight premium for their stock. But for Iger, it’s not as clear-cut. Let’s say Disney continues to muddle along under Iger as it did in the late Eisner years. Shareholders and observers will begin to note that having Iger run the company while Jobs sits on the board is like having Michael Jordan (the basketball player) on the bench while Will Perdue is tossing up bricks. One of the biggest issues Disney faces is how to cope with the digitalization of the media. No one has done a better job than Jobs in helping established companies and industries cash in digitalization. So, there is little doubt Jobs will be a goad to Iger.
And Jobs has toppled his boss before. In the mid-1980s, Jobs left Apple after a dispute with CEO John Sculley and started a new computer company, NeXT. (This Colin Barker article in Computing provides good background.) In early 1997, Apple CEO Gilbert Amelio, eager to restart Apple’s growth, acquired NeXt and the services of Jobs. In less than six months, Amelio was gone and Jobs assumed the role of CEO.
Michael Eisner was able to hold on for so long at Disney because his miracle first decade at Disney served as ballast when he came under criticism. Iger won’t have that luxury. Eisner also benefited from the fact that he continually drove away executives who had the capabilities to succeed him. As a result, there was never an obvious replacement for him. Iger won’t have that luxury, either.