Strategic Initiative Paper
March 6, 2013
Strategic Initiative Paper
Disney is always looking for opportunities to complement their operations in theme parks as well as movie production. This article will discuss Disney’s acquisition of Lucasfilm, a strategic planning initiative released in Disney’s 2012 annual report. The article will delve into how this acquisition affects the Disney’s financial planning; that is, how this initiative affects costs, how will the initiative affect sales, and the risks associated with the initiative and financial effects they may have.
What was the strategic and financial rationale for Disney’s purchase of Lucasfilm for $4 billion? As noted by ...view middle of the document...
With such a significant investment, Disney has an aggressive plan to expand the Stars Wars film schedule term to release a new Star Wars feature film every two to three years.
The decision for the Disney Company to purchase Lucasfilms was a surprise to many investors. The purchase price of $4Billion was funded with half cash and half in stock sales. At the close of Disney’s 2012 fiscal year the cash and cash equivalent balance was $3.3 billion dollars. When a public company has a high cash balance, investors consider the company to be a good investment. When a company is considered to be a good investment the stock prices of that company generally increases. From December 2010 through September 2012, Disney stock prices increased from $37 to $52, which is indicative of strong financials.
One of the factors considered in the purchase of Lucasfilms was the affect on costs for the Disney Company. One of the companies that were included with the purchase of Lucasfilms was a visual effects company. The ability for Disney to produce high quality visual effects is one of the ways that Disney will decrease the costs of producing movies.
The affect on sales is undetermined at this time. Disney is hoping that the acquisition of Lucasfilms will increase sales in the future by releasing a Star Wars movie every two years beginning in 2015. Disney is also hoping to capitalize on the Star Wars brand at the Disney Theme parks. According to Los Angeles Times (2012), “Todd Juenger of Bernstein Research said Disney needs to find about $150 million of annual cost savings from Lucasfilm and generate $1.5 billion in worldwide box-office sales from each of the next three "Star Wars" films to make the deal pay off.”
As with any major acquisition or investment the risks have to be evaluated. Disney purchased Lucasfilms for 4 billion dollars and with any major purchase a company makes the goal is to bring in more money. With this purchase Disney had to consider all of the possible risk associated with an acquisition of this magnitude. The first obvious risk with Disney having many divisions and already being a well established and marketed company; they must decide if there is really a need. A number of major corporations have made large investments or purchased...