Inside the Disney Deal Playbook -- WSJ
With his company's pursuit of Fox, CEO Robert Iger's formula faces its biggest test.
By Erich Schwartzel and Ben Fritz
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 7, 2018).
LOS ANGELES -- Disney Chief Executive Robert Iger has a signature formula for making deals. First, target a company that few know is even for sale. Then, win over the top executive by extolling Disney's vision for the company's future. Finally, figure out how to integrate the new company and its distinctive culture into Disney's money-making franchise machine, across the empire's movie, television, consumer products and theme parks businesses.
It's a strategy Mr. Iger pursued successfully in Disney's three biggest acquisitions during his tenure: Pixar Animation Studios, Marvel Entertainment and Lucasfilm Ltd. These deals allowed Disney to dominate the Hollywood landscape with megahits like "Star Wars: The Last Jedi," "Black Panther" and "The Incredibles 2" in the past year alone.
Now, that dealmaking playbook is being put to the test by the company's riskiest pursuit yet. Disney is locked in a protracted bidding war with Comcast Corp. to win major assets of 21st Century Fox Inc., a media fight that's driven Disney's bid to $71 billion. In contrast, the acquisitions of Pixar, Marvel and Lucasfilm cost Disney less than $16 billion combined.
In his pursuit of Fox, Mr. Iger once again saw an asset that no one thought was for sale. He again sold an iconoclastic top executive -- in this case, media titan Rupert Murdoch -- on his vision.
"It's the same approach, just magnified," said a person close to Disney's previous deals.
But with Fox, Mr. Iger is asking his company to swallow an acquisition that transforms his company's business strategy and is nearly 10 times bigger than any previous purchase he's made as CEO.
Both Disney and Comcast think acquiring Fox would give them the leverage and scale they need to compete in a digital landscape where tech firms like Netflix Inc. rule. In response to Netflix's dominance, Mr. Iger has reorganized his company around a Disney-branded streaming service set to launch next year with original programming.
Mr. Iger's legacy, once seemingly secure, is on the line. If the deal goes south, he may well be remembered more as the executive who lost Fox than the one who built Disney into the entertainment empire of the early 2000s.
And if it goes through, he will need to convince some Wall Street skeptics of his plan.
"Arguing that acquiring Fox will help win the war in the fight for the [direct-to-consumer] market is similar to Bob McNamara arguing in 1965 that he could win in Vietnam if he had more troops," Doug Creutz of Cowen & Co. wrote in a recent report. Disney declined to comment on Mr. Creutz's report but noted that other Wall Street analysts support the plan.
After postponing his retirement four times, Mr. Iger is now scheduled to leave Disney in 2021, assuming the Fox deal is completed.
When Mr. Iger took over as Disney CEO in 2005, he quickly became a stabilizing force for a company in turmoil. His predecessor, Michael Eisner, spent his final years preoccupied by contentious boardroom drama.
His first major test as CEO came in 2006, when Mr. Iger made a deal to buy Pixar Animation Studios. The production company behind hits like "Toy Story" and "The Incredibles" had upstaged Disney's own animation house, and Mr. Iger thought the acquisition could rejuvenate its core business of family entertainment.
Winning Pixar required wooing Steve Jobs, the Apple Inc. co-founder and Pixar chairman. Mr. Iger promised Mr. Jobs that Pixar's creative culture would remain untouched, and that Disney would promote the studio's characters across its multiple divisions.
"Steve Jobs didn't do the deal because of Bob Iger. He did it because of the strategic vision Bob laid out," a former Disney employee said.
The ultimate price tag of $7.4 billion in Disney stock was on the high end of bankers' estimates of Pixar's worth, according to people familiar with the negotiations.
It proved to be a savvy move. Pixar has since produced some of Disney's biggest hits, including "Finding Dory." The company's chief creative executive, John Lasseter, led Disney Animation through a renaissance that brought "Zootopia" and "Frozen" to the screen. (Mr. Lasseter left the company last year following allegations of inappropriately touching subordinates.)
The Iger playbook also came in handy with the 2009 acquisition of Marvel Entertainment. The $4 billion purchase caught Hollywood by surprise, since Marvel wasn't officially for sale. Mr. Iger personally wooed its chief executive and controlling shareholder, Ike Perlmutter, much as he did Mr. Jobs, by promising him broad autonomy along with access to Disney's vast resources, according to people with knowledge of that deal.
And in 2012, Mr. Iger met George Lucas to discuss buying Lucasfilm Ltd., another $4 billion deal that's resulted in megahits like "The Force Awakens" and "Rogue One." Again, few knew Mr. Lucas was considering retirement, and people close to Lucasfilm speculate the company could have fetched a higher price if it had entertained competing offers. Again, Mr. Iger won out.
The pursuit of Fox is one step in Mr. Iger's new quest: to transform Disney into a digital powerhouse that can compete with Netflix. By the time Messrs. Iger and Murdoch began hashing out a possible deal at Mr. Murdoch's Los Angeles vineyard last year, Disney had already announced plans to launch its own streaming service. (21st Century Fox and Wall Street Journal parent News Corp share common ownership.) Buying Fox fit into the existing plan, so the talks moved forward.
Things quickly grew complicated when Comcast entered the fray. Disney and Fox agreed to an all-stock deal in December valued at $52.4 billion. Last month, Comcast put in an unsolicited $65 billion all-cash bid for the assets, prompting Disney to boost its offer to a $71.3 billion mix of cash and stock. The move could strain Disney's balance sheet. And the steeper price caused a few credit ratings agencies to put Disney on a downgrade watch.
Unlike Pixar or Marvel, Fox is too big to have a single company culture, and absorbing it may be prove more challenging for Disney than its prior acquisitions. The Fox Searchlight specialty film division behind "The Shape of Water" is very different than the FX cable network that made "Atlanta" or the Star satellite TV service that airs cricket in India.
But Fox's difference from Disney could prove to be a major asset, since it builds out a library of programming the company can use in its streaming strategy. Fox-produced edgy entertainment could also help siphon users from Netflix, who wouldn't typically sign up for a family-oriented service.