Student: Pakos Spyridon
Professor: Dr. S. Voliotis
On October 30, 2012, the US based multinational mass media and entertainment company Walt Disney announced that it would acquire Lucasfilm. A so called “Mega-deal” was on its way, valued at $ 4.05 billion, equally split between stocks and cash. The deal was sealed after negotiations that took over a year and a half, and for Disney it was the third significant acquisition after the buyouts of Marvel and Pixar.
Being in a highly competitive market, Disney was seeking the growth through acquisitions in order to reverse its poor performance showed over of the last past years. A new strategy was to be implemented to ensure their sustenance in the market by attracting new audiences. Disney’s acquisition of Lucasfilm was an important milestone in the company’s new strategy. In 2012, one of the greatest sales contracts in the movie history became true as a result of long negotiations between Robert Iger, the CEO of Walt Disney, and George Lucas, the founder and owner of Lucasfilm. The negotiation between the two parties, which will further be analyzed below, was a long process of building trust and using strategies to create more value for both counterparts.
The Wald Disney Company
The Wald Disney Company, founded on October 16th 1923 by brothers Walt and Roy Disney, is one of the most companies in the animation industry, known for providing high class entertainment, with international theme parks and a world-class animation studio and business franchise. A company that nearly dominating the entertainment industry. Famous names such as Mickey Mouse began with Disney, and were the foundation of a company that has now branched out into several entertainment studios, theme parks and resorts, consumer products, other media productions and one of the biggest movie studios in the world.
On October 1, 2005, Robert Iger replaced Eisner as CEO. Since becoming Disney’s CEO in 2005, Robert A. Iger has aggressively expanded the company beyond its traditional niche. On January 23, 2006, it was announced that Disney would purchase Pixar. The deal, valued at $7.4 billion. On August 31, 2009, Disney announced a deal to acquire Marvel Entertainment for $4.24 billion, in a deal completed on December 31, 2009. These heavily- expensive, but ingenious acquisitions reflect Disney’s focus on branding and leveraging well-known and well received properties.
Later, in August 2011, Bob Iger stated on a conference call that after the success of the Pixar and Marvel purchases, he and the Walt Disney Company are looking to “buy either new characters or businesses that are capable of creating great characters and great stories.”
On October 30, 2012, Disney announced plans to acquire Lucasfilm in a deal valued at $4.05 billion. Disney announced an intent to leverage the Star Wars franchise across its divisions, and planned to produce a seventh installment in the main film franchise for release in 2015.5758 The Lucasfilm acquisition could turn out to be Iger’s last big move at Disney. He plans to step down as CEO in 2015, although he’ll remain chairman for another year.
Disney’s timeline from founding until Lucasfilm?s acquisition
The Lucasfilm Ltd
Lucasfilm Ltd. is one of the leading American entertainment production companies, founded by the filmmaker George Lucas in 1971. The company best known for producing films like the Star Wars and Indiana Jones is based in California.
Lucasfilm has also been a pioneer in developing new film technology in special effects, sound, and computer animation. Because of their expertise its subsidiaries, like Skywalker Sound and Industrial Light ; Magic (ILM) often help non-Lucasfilm productions. Alone Skywalker Sound offer every year to more than 100 productions its sound services. In 2012, Lucas hires Kathleen Kennedy as a CEO and co- chairman of Lucasfilm. Today and after its acquisition in 2012, Lucasfilm is a subsidiary of The Walt Disney Company.
Lucasfilm?s timeline from founding until its acquisition by Disney
Lucasfilm had previously collaborated with Walt Disney to include Star Wars and Indiana Jones attractions in various Walt Disney Parks and Resorts all over the globus.
In May 2011, Iger visited the Walt Disney World Resort in Florida for the opening of Star Tours: The Adventures Continue attraction. George Lucas would also be there, since he was involved in the implementation of the project. Iger’s intention was to meet Lucas, since he was the sole shareholder of Lucasfilm. He invited Lucas having together breakfast on the morning of the Star Tours opening at the Hollywood Brown Derby. The restaurant was closed only for the two men so that they could speak without being disturbed and observed by others. The two had a small talk the opening of Star Tours and their presence in the opening ceremony. Then Iger asked Lucas if he would ever think about selling his company.
Lucas answered that he was thinking about retiring, since he recently became 67 years old. Furthermore, he had already restructured Lucasfilm so as to be independent on him. But he stated that he was still not ready to go that step, because he wanted to bring forward some of his existing projects. Lucas ensured Igel, he would come back discussing his offer if he was ready for. Iger told Lucas to call him when would get ready, and they both went to celebrate the Star Tours opening.
In the meanwhile, George Lucas had already evaluated the information of how Disney had handled Pixars acquisition. Pixar’s creative team and management could further maintain their roles in the company. Following, he thought he could keep some influence over Star Wars if he sold Lucasfilm to Disney. In order to empower this influence he asked Kathleen Kennedy, one of the more powerful women in the entertainment business (founder of Amblin Entertainment, producer of Jurassic Park and Schindler’s List), to become the CEO and co-chairman of Lucasfilm. Lucas did this knowing that Disney would leave her in that position, after seeing the heads of Marvel and Pixar stay in place. Kennedy accepted Lucas?s proposal and they both immediately started about starting initiatives so as to push up the franchise and built up the company for the time after Lucas retirement.
Later Lucas and Kennedy decided to start working on the new episodes of Star Wars VII, VIII, IX. They hired the famous screenwriter Michael Arndt to begin work on the script for Episode VII and they started talking ex- casting members of Star Wars, like Mark Hamill, Carrie Fisher, and Harrison Ford. Lucas was sure, that by doing the above mentioned contacts, he would manage to increase the value of Lucasfilm.
In June 2012, Lucas called Iger in order to continue their discussion of selling Lucasfilm to Disney. The second round of negotiations lasted over five months. Lucas?s proposal to Iger was to hand over the company and its subsidiaries but so as to maintain the company’s structure intact and that he and his executives team keeps the control of Star Wars, since they were familiar with Star Wars and Lucasfilm?s franchise.
Iger could follow Lucas’s concerns and he really recognized the knowledge Lucas and his team would bring over Star Wars, its characters and chronology. He then offered Lucas some autonomy over Star Wars. But at the same time he made Lucas clear that Disney would have final say over any future movies.
Lucas agreed, but he also insisted in making the story treatments for the final Star Wars Trilogy part of the acquisition agreement. At the beginning, Igel seemed to agree with that, but he first wanted to take a look at the scripts. Lucas was not ready to hand them over, telling Igel he had to trust him the scripts were great. But in September 2012 Lucas agreed handing them out to a limited number of people by getting a non- disclosure agreement. The scripts could only be read by Iger, Horn, and Kevin Mayer, Disney’s executive vice president for corporate strategy.
Iger finally gave Lucas a feedback about the scripts, telling him they had a good story. Last but not least, he expressed towards Lucas the risks Disney would undertake due to the uncertainty in the global market and because of the fact, that they still had not a definite answer about the casting of the films.
On October 30, 2012, Disney acquired ownership of Star Wars, Indiana Jones, and Lucasfilm’s operating businesses in live-action film production, consumer products, video games, animation, visual effects, and audio post-production (e.g. ILM, Skywalker Sound). (4) A deal valued at $ 4.05 billion, equally split between stocks and cash, that ensured Lucas position as a consultant and made him the second largest Disney- shareholder after the Laurene Jobs Trust.
Was this a distributive or an integrative negotiation? Did each side treat the negotiation as integrative or distributive? Was the approach each side chose correct or not?
In order to specify the way the counterparts negotiated, we have to define the above mentioned types of negotiations. A distributive negotiation is the typical negotiation where counterparts negotiate to get a cut out of a fixed pie, and only distribute value. If the one side wants more the other side has to pay more and vice versa. In this case negotiations are seen as a win/ lose situation. The parties have a strong focus on themselves and ignore the interests of the other party. The negotiators only work with a few variables and have narrow focus e.g. on price, bonds, liability, and risk with no regards to whether a change might the business of your partner and vice versa.
On the other hand, the integrative negotiation is about getting focus away from price and instead increases the size “of the pie”. The core of the theory is to identify every negotiation variable and area between the parties that hold potential value and negotiate together for optimal utilization. Uncovering and integrate the underlying needs and interests of both parties are key. Together the parties will analyze what drives the cost and/ or creates value in the process. By doing this, the parties are able to support a negotiation climate that inspires openness and willingness.
Following the whole negotiations process between Igel and Lucas, it is obvious that both parties used an integrative negotiation strategy. Based on trust, both parties had to feel as if they could win something in the deal. They negotiated in such a way that they took the other party’s wants, needs, fears, and concerns into the equation. Both Igel and Lucas were not simply worrying about losing less than the other counterpart They were both looking for a solution in which both parties could win something to finalize the deal.
As already told, the negotiation had to be based on trust. And this was mutual achieved by the two negotiators. Firstly, both counterparts gave each other the time needed to develop trust. The negotiations lasted for a year and a half. Although they knew each other through prior collaboration concerning the Theme-parks, the acquisition would imply big personal and corporate changes. Furthermore, Igel wasn’t denying to Lucas that he was really interested in acquiring Lucasfilm. As Lucas asked Igel to include the scripts for the new Star Wars films in the deal, Igel provided his intention of doing this.
On the other hand Lucas sends a signal of trust to Igel, by saying that he would come back to his proposal, if he would get ready to selling his company. He also signalized that Disney would be the right home for his baby Lucasfilm.
Counterpart assessment, Igel knew he had to talk with Lucas, the sole shareholder of Lucasfilm. He was also aware of Lucas’s values concerning the future of Star Wars. A further signal of the importance was that Igel called Lucas so as to meet him personally and discuss, instead of using another mean of communication.
The discussion took place in a very friendly environment. They started discussing about the opening of Star Tours and Igel asked if he was satisfied with the result of the project.
Active Listening was also the case. Igel understood Lucas about his intention to retire and he did not pushing Lucas to give an answer during their first meeting. He more offered Lucas the chance to come back discussing when he got ready.
From May 2012 until June 2012 Lucas worked hardly on his best alternative to a negotiated agreement (BATNA). He knew that strengthening his BATNA, he might improve the deal. So, Lucas worked on enhancing the value of Star Wars for Disney and other potential byers by hiring Kathleen Kennedy, as already above described, and by starting the implementation for a new Star Wars trilogy. In addition to that they hired a famous screenwriter for the next film, and they talked to Mark Hamill, Carrie Fisher, and Harrison Ford, about the possibility of taking part in to Episode VII.
At the same time, Lucas was aware that handing Lucasfilm over to Disney would bring Star Wars and Indiana Jones back into life and cause a lot of synergies. His target was to be part of the new era of Star Wars and the synergies. So in June 2012, Lucas contacted Igel and proposed to go further with the acquisition under the condition that the structure of the company would remain the same. A proposal easily accepted by Igel, since he was aware of Lucas?s legacy and his knowledge about the characters and the chronology of Star Wars. At the end both parties recognized they wanted the same thing: to completely satisfy the Star War fans and achieve the best result for the company’s shareholders. Both of the counterparts were willing to make the deal and not to blow up the whole process. The two parties made a concession: Lucas would keep residual influence over the franchise and Disney would have the final say.
Last but not least, Lucas tried to expand the “pie” and move the negotiation forward by giving a small team of Disney’s executives the chance to read the Star Wars script, and asking for a pre- disclosure agreement in return.
Each side implemented an integrative strategy and in my opinion, they both did pretty well. The deal became true and both parties could maximize the possible outcome, without jeopardizing the process at all stages. Igel as well as Lucas were very patient and they provided high level of skills. Both of them were looking all the time for underlying interests and needs behind the other side’s position. Furthermore, they provided an attitude and belief that working together will create a better outcome of the negotiation.
Moreover, they were both able to ask but even more carefully listen to the other side. Igel and Lucas clearly identified their own BATNA and the one of their counterpart. Because of the trust they showed to each other, the parties were ready to present offers and ask for something in return. A “win-win” deal got achieved.
Focusing purely on the financial aspects of the deal, evaluate the negotiating outcome for each side.
Financially both parties have benefitted from this acquisition. First of all Lucas became about $ 4.05 billion, equally split between stocks and cash. Considering the fact that Lucas’ entire net worth was estimated in 2012 by Forbes to only $3.3 Billion when including his companies, it seems that it was a fantastic deal for Lucas (Frank, 2012). In addition to that, Lucas became Disney’s second largest shareholder. So, he had the benefits of the rapid increase of the company’s stock price after Lucasfilm?s acquisition from 2012 until 2018 (see diagram below).
Disney’s stock- price (source: https://www.macrotrends.net/stocks/charts/DIS/walt-disney/stock-price-history)
The later resulted also a gain for Disney. The time after Lucasfilm?s acquisition, from year 2012 until 2018, Disney’s value almost drippled. Additionally, it was a good investment for Disney since they knew that in the past Lukasfilms?s profits from its films were in some cases ten times more than the actual film production- costs. This was a fact smoothing Disney’s risk of investing this big amount of money to Lucas.
Disney became in a time less than five years the proof of doing the right investment: “Episode VII – The Force Awakens”, “Rogue One – A Star Wars Story” and “Episode VIII – The Last Jedi” were well received by the Star Wars- fans and all three became good critics. According to the American news site Qz.com, the three films already re-recorded the $4 billion purchase price. The financial benefit could significantly increase further, since Lucas maintained a database with 17.000 characters in the Star Wars universe, living in thousands of planets over a time span of 20.000 years. Not to mention the hundreds of millions Disney could additionally globally generate in consumer products and licensing.
Focusing now on all aspects of the deal, evaluate the negotiating outcome for each side.
We have to take into consideration that Lucas was initially not after the money. He was emotional more concerned about the future of his Star Wars Legacy. Everybody should continue to combine his name with Star Wars. So he actually tried to keep creative control of his movies. And this is a target he got Iger to agree on. He became a consultant for the future Star Wars films and his story treatments for the final Star Wars Trilogy, were also included in the contract. One more gain for Lucas was the opportunity of being active as a decision maker in the new company, due to number of shares he owned.
Furthermore, Igel ensured Lucasfilm creative team?s autonomy under the command of Kathleen Kennedy, CEO and co- chairman of Lucasfilm, as it was the case after the buyout of Pixar and Marvel. But he had for sure to give up to Disney the ultimate decision making.
In addition to that, since Lucas assured Lucasfilm?s future, he would now have more time and money to make more experimental movies and satisfy his emotional needs. Something he really wanted to do after his retirement.
The deal suited also perfectly into Iger’s plan for Walt Disney. After Pixar’s and Marvel?s purchases, for $7.4 billion $4 billion respectively, he wanted to further secure the company’s creative and competitive future. For Disney, Lucasfilm was more than only Star Wars. A reason for the great success of its film productions were the special effects and the services of its subsidiaries, like the ILM (Industrial Light ; Magic- visuals effects) and the Skywalker Sound.
Consequently, the deal made sense from a strategic perspective. Disney as a world class studio could now continue the Star Wars franchise, producing great movies and maximize the Star Wars fan base all over the world.
Both parties made concessions but ended up with creating more value than initially on the table. The Star Wars movies created by Disney and Lucasfilm made significant high turnovers all over the world and all of them earned excellent movie critics.
(5) https://www.pon.harvard.edu/daily/batna/star-wars-stories-george-lucas-and-a-strong-batna-passed-over/(6):https://www.pon.harvard.edu/daily/business-negotiations/a-forceful-deal-george-lucas-puts-his-trust-in-disney/?mqsc=E3822093;utm_source=WhatCountsEmail;utm_medium=PON%20Harvard+Neg%20Insider%20(Tuesday/Thursday)%20Standard%20Rule+Neg%20Insider%20(Tuesday/Thursday)%20Standard%20Rule;utm_campaign=Neg_Insider_01052016(7): http://articles.chicagotribune.com/2012-11-08/news/chi-tms-v-george-lucas-story_1_george-lucas-lucas-empire-lucasfilm