What choices Bob Iger had in 2005? Is it most sensible to buy Pixar?

Disney & Pixar were able to create sequential synergies in which the resources of these two firms
were sequentially interdependent. Pixar derived its competitive advantage from the fact that it hired
talented people and created a trusting work environment that allowed people to thrive. The
combination of highly talented people, unique work culture along with the advanced proprietary
technology in CG animation had given Pixar an edge and higher bargaining power over Disney.
Competition from other major studios was growing steadily & these studios were ready to engage
with Pixar with 8 % distribution fee. The proven track record of Pixar collaboration had reduced the
uncertainty surrounding the technology and thus for Disney, it was important to keep the synergies
of the collaboration with Pixar intact.

Considering Disney’s relationship with Pixar, Bob Iger could have taken the following steps:

1) Strike up an Equity Alliance with Pixar with scope for additional equity at a later stage
2) Renegotiate the existing contract with Pixar and compromise on the reduced distribution fee
that Pixar was offering.
3) Outright buying Pixar and leverage Jobs and Lasseter’s experience on the board.

As Disney & Pixar were trying to generate synergies using their key resources (i.e Human
resources),Disney should have entered into an equity alliance with Pixar. An equity alliance would
have allowed the Disney to control the actions of their partners and monitor their performance
closely. This would have also prevented the possibility of a major exodus of creative talent from
Pixar that generally is associated with an acquisition.Given the size of the deal, which was about 7.5
Billion USD, it would have been sensible for Disney to buy Pixar only if Disney could prevent the
exodus of creative talent from Pixar once the deal was completed.