Pixar Stock Surges on Deal Rumor

Times Staff Writers

Pixar Animation Studios shares soared to a record high Wednesday amid speculation that the company behind "Finding Nemo" and "The Incredibles" is on the verge of a new deal with -- and possibly sale to -- longtime partner Walt Disney Co.

The nearly 8% jump in Pixar's stock, to $58.16 a share, comes as Chief Executive Steve Jobs and Disney Chief Executive Robert Iger have been negotiating to extend their companies' long-term distribution pact that ends this summer with the release of Pixar's "Cars."

Recent talks have focused increasingly on Disney acquiring part or all of Pixar, two sources close to the matter said Wednesday. In that scenario, Jobs would become a major Disney shareholder and possibly the company's chairman. The sources would not speak on the record because talks were ongoing.

The sale speculation became feverish Wednesday afternoon on Wall Street, causing Pixar stock to jump $4.20 in heavy trading. That increased the value of Jobs' controlling stake by $250 million to nearly $3.5 billion.

"The activity in the stock today indicates to us that the market believes that some type of announcement is imminent, whether it's a new distribution deal or something broader in scope," said media analyst Michael Savner of Banc of America Securities.

Disney spokeswoman Zenia Mucha said that negotiations were continuing between the two companies and that there was "nothing new to report." A Pixar executive declined to comment.

Buying Pixar would put Disney on the fast track to reclaiming the animation crown it held for decades but lost to Pixar and rival DreamWorks Animation SKG as the public embraced computer animation.

After releasing such lackluster and traditional animated fare as "Treasure Planet" and "Home on the Range," Disney remade its unit to produce only computer-generated films. Its latest release, "Chicken Little," has grossed a respectable $132.3 million domestically.

Still, it failed to match the kind of success enjoyed by Pixar, which has produced six blockbusters in six tries, including the "Toy Story" films, "A Bug's Life" and "Monsters, Inc."

Under their partnership, Pixar produces the movies and Disney markets and distributes them worldwide for a fee.

The two companies split all costs and profits. Pixar wants a deal from Disney or another studio that would allow it to keep the profits from its films while paying the studio only a distribution fee.

Negotiations to extend the current deal reached a standstill in January 2004 amid tension between Jobs and former Disney Chief Executive Michael Eisner. Since being named as Eisner's successor last spring, Iger has made forging a new Pixar deal a top priority.

A full acquisition would be a large bite, however, even for a media giant the size of Disney. Pixar's market value is already nearly $7 billion, and Disney would undoubtedly have to pay a premium for the Emeryville, Calif.-based company.

Analysts are asking whether Disney isn't better off making a new distribution deal. Some note that a sale would possibly dilute Disney's value because its shares sell at a much lower price-to-earnings ratio than Pixar's. Disney's stock on Wednesday fell 41 cents, or 1.7%, to $23.99.

"To the extent that Disney will pay $7 billion or more, it seems like an extremely large sum of money given that it already controls the sequel rights and existing films that Pixar created," independent media analyst Richard Greenfield said.

However, Greenfield added, much hinges on how confident Disney is in its upcoming slate of animated films.

"If you're scared that these films are going to be flops," Greenfield said, "maybe it's the right strategic decision."

For Jobs, selling Pixar may allow him to focus on running Apple Computer Inc., which is riding the popularity of its iPod products.

Other analysts are skeptical that Jobs would be willing to part with Pixar, which he bought in 1986 from George Lucas for $10 million. Over the years, Jobs and Pixar's creative guru, John Lasseter, a former Disney animator, established a unique culture that gives artists a wide degree of creative freedom that large studios rarely grant.

"I'd be very surprised if Steve Jobs gave up control of Pixar," said analyst Anthony Valencia of Los Angeles-based TCW Group, Pixar's largest institutional shareholder. "What's the upside for him?"

Times staff writer Kim Christensen contributed to this report.

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