LOS ANGELES -- The Walt Disney Co. formally announced yesterday an agreement to buy industry pioneer Pixar Animation Studios, sending a clear signal it intends to fix its ailing animation unit while aggressively pursuing a strategy to be at the forefront of Hollywood's digital future.
The $7.4 billion all-stock deal aims to re-establish a tradition of creative and technological innovation that began with founder Walt Disney 80 years ago.
It allies Disney Chief Executive Officer Robert A. Iger with Pixar Chairman Steven P. Jobs, the co-founder and head of Apple Computer Co., whose iTunes technology and other innovations changed the way people consume entertainment. Shortly after being named CEO in early October, Iger cut a deal with Jobs to make ABC's hit shows Desperate Housewives and Lost available for download on Apple's new video iPod.
The marriage of the two companies announced yesterday only expands the opportunities for collaboration - and enhances the stature of Jobs in the entertainment industry. He is already by many accounts the most influential figure in the technological revolution.
He will be Disney's single largest shareholder, with 6 percent of the company, and hold a seat on the entertainment giant's board of directors. He also will pocket about $3.5 billion from the sale of Pixar, which he bought from director George Lucas in 1986 for $10 million.
Iger and Jobs announced the much-anticipated deal not from Disney's headquarters in Burbank, Calif., but from Pixar headquarters in Emeryville, Calif., in a conference call with media analysts.
Owning Pixar will not only help fatten Disney's box office coffers, it also will provide the studio with new characters to freshen its theme parks, consumer products and cable networks.
"As I considered all the different possibilities of how to return Disney animation to greatness, it was clear to me that maintaining a relationship with Pixar was essential," Iger said. "I sit here today, at Pixar, being not only incredibly excited about this deal but more optimistic about Disney with Pixar part of it."
After a successful 15-year partnership in which Disney marketed and distributed such Pixar blockbusters as The Incredibles, Finding Nemo and the Toy Story films, the two companies nearly parted ways two years ago after Jobs clashed repeatedly with Iger's predecessor, Michael D. Eisner.
Since becoming Disney's chief executive in October, Iger has made it a priority to mend the company's fractured relationship with Jobs. Their companies' current arrangement was to end in June with the release of Pixar's Cars.
"After a lot of soul searching and thinking, and of course getting to know Bob, this looked to be the most exciting path to Pixar's future," Jobs said.
Both Iger and Jobs went to great pains to say that Pixar's unique, artist-driven culture will be preserved after the companies combine.
"I fully trust that as long as we can protect that environment and maintain it, we will continue to keep the best people," Iger said.
Pixar shares, which had risen more than 10 percent in recent weeks on takeover speculation, fell 70 cents to $57.57 yesterday, before the deal was announced. The stock rose to as much as $59.10 in after-hours trading. Disney shares rose 47 cents to $25.99 in regular trading and inched up to $26 after hours.
The acquisition could have serious side effects for Disney's core animation group and its chief David Stainton. Pixar's creative guru John A. Lasseter and Pixar President Ed Catmull will take charge of Disney's animation operation from Stainton, whose future role with Disney is unclear.
Lasseter launched his career as an animator at Disney in the 1980s and will be chief creative officer, in charge of Disney animation and Pixar, which will remain separate units.
He also will be the principal creative adviser at Walt Disney Imagineering, helping it design new theme park attractions. Catmull will be president of both Pixar and Disney animation studios, reporting to Iger and Richard Cook, chairman of Disney Studios.
It is unknown how many of Disney's 700 animation employees in Burbank will lose their jobs as a result of the combination of the companies.
Over the past three years Disney's animation ranks have shrunk from more than 2,000 employees as the company endured a string of costly box office disappointments, including Home on the Range and Treasure Planet.
Buying Pixar will instantly hasten Disney's efforts to restore its once dominant role as animation king, a position it ceded in recent years to Pixar and other rivals such as DreamWorks Animation.
Disney was the last to jump on the digital bandwagon, finally abandoning the traditional hand-drawn cartoons on which it built its name with such hits as The Lion King and Beauty and the Beast.
Some analysts said Iger's decision to acquire Pixar is as potentially significant for the future of Disney as Eisner's decision to buy ABC more than a decade ago.
Others said the merger, which is expected to close this summer, is not without risks. "Disney is paying a very big price that really requires continued flawless execution from Pixar," said SG Cowen & Co. analyst Lowell Singer. "It makes this far from a slam dunk."
Claudia Eller and Kim Christensen write for the Los Angeles Times.