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Disney Empire Strikes Back: As George Lucas Moves On, Disney Picks Up His Bay Area Lucasfilm for $4.05 Billion

Disney Empire Strikes Back: As George Lucas Moves On, Disney Picks Up His Bay Area Lucasfilm for $4.05 Billion

Walt Disney Co. has made a major purchase– following its earlier acquisition of Pixar and Marvel Entertainment– by scooping up George Lucas’s Bay Area Lucasfilm for $4.05 billion. This means that Disney and its theme parks will own many rights to Lucas’s “Star Wars” franchise–in its myriad forms.

Kathleen Kennedy recently moved up to the Bay Area to take over running Lucasfilm as president, as Lucas had planned to step back from hands-on running of the sprawling empire which includes top VFX house Industrial Light & Magic, which Disney will retain. She will continue as president and report to studio chairman Alan Horn.

Lucas has given Disney a detailed treatment for a new trilogy of future ‘Star Wars” films, the first of which (“Episode 7”) is in development now for release in 2015. The valuation of this purchase is based on the future revenues of new “Star Wars” films–and all the licensing and merchandising, expanded theme park rides and so on. They plan a new “Star Wars” film every two to three years.

The last “Star Wars” film, “Revenge of the Sith,” came out in 2005. In that year Lucasfilm generated $550 million in operating income. In a conference call, Disney chairman Bob Iger loved the idea of banking on an established popular brand, and compared the purchase to Marvel. There is even more opportunity for growth internationally for Disney than with Marvel, as Disney will take over the third parties that handle Lucasfilm consumer products overseas.

Disney reports that about a quarter of Lucasfilm’s business is the film studio-based business, a quarter consumer products, games are less than 20% and the rest is other businesses, based on 2011 revenues. Disney will stick to their plan to release one to two Marvel films a year (and say they are pleased with where they are three years in), one Pixar animated film a year, one Disney animated film a year, and four to six live action films; “Star Wars” would take one of the annual live action tentpole slots.

The “Star Wars” films at Twentieth Century Fox and “Indiana Jones” at Paramount are somewhat encumbered, although Disney said this was less so than many of the Marvel encumbrances. Fox does not have future distribution rights to “Star Wars.” Iger started talking to Lucas about a year and a half ago and once they decided to go forward with a sale, they negotiated to close the deal. Lucas will effectively retire, but he will serve as a consultant, especially on the development of the new trilogy. “‘Star Wars’ is one of the great entertainment brands of all time,” said Iger. “We like ‘Star Wars” potential in TV as well.”

Here’s the Disney release.

 Burbank, CA and San Francisco, CA, October 30, 2012 –  Continuing its strategy of delivering exceptional creative content to audiences around the world, The Walt Disney Company (NYSE: DIS) has agreed to acquire Lucasfilm Ltd. in a stock and cash transaction.  Lucasfilm is 100% owned by Lucasfilm Chairman and Founder, George Lucas.

 Under the terms of the agreement and based on the closing price of Disney stock on October 26, 2012, the transaction value is $4.05 billion, with Disney paying approximately half of the consideration  in cash and issuing approximately 40 million shares at closing.  The final consideration will be subject to customary post-closing balance sheet adjustments.

 “Lucasfilm reflects the extraordinary passion, vision, and storytelling of its founder, George Lucas,” said Robert A. Iger, Chairman and Chief Executive Officer of The Walt Disney Company. “This transaction combines a world-class portfolio of content including Star Wars, one of the greatest family entertainment franchises of all time, with Disney’s unique and unparalleled creativity across multiple platforms, businesses, and markets to generate sustained growth and drive significant long-term value.”

 “For the past 35 years, one of my greatest pleasures has been to see Star Wars passed from one generation to the next,” said George Lucas, Chairman and Chief Executive Officer of Lucasfilm.  “It’s now time for me to pass Star Wars on to a new generation of filmmakers.  I’ve always believed that Star Wars could live beyond me, and I thought it was important to set up the transition during my lifetime.  I’m confident that with Lucasfilm under the leadership of Kathleen Kennedy, and having a new home within the Disney organization, Star Wars will certainly live on and flourish for many generations to come.  Disney’s reach and experience give Lucasfilm the opportunity to blaze new trails in film, television, interactive media, theme parks, live entertainment, and consumer products.”

 Under the deal, Disney will acquire ownership of Lucasfilm, a leader in entertainment, innovation and technology, including its massively popular and “evergreen” Star Wars franchise and its operating businesses in live action film production, consumer products, animation, visual effects, and audio post production.  Disney will also acquire the substantial portfolio of cutting-edge entertainment technologies that have kept audiences enthralled for many years.  Lucasfilm, headquartered in San Francisco, operates under the names Lucasfilm Ltd., LucasArts, Industrial Light & Magic, and Skywalker Sound, and the present intent is for Lucasfilm employees to remain in their current locations.

 Kathleen Kennedy, current Co-Chairman of Lucasfilm, will become President of Lucasfilm, reporting to Walt Disney Studios Chairman Alan Horn.  Additionally she will serve as the brand manager for Star Wars, working directly with Disney’s global lines of business to build, further integrate, and maximize the value of this global franchise.  Ms. Kennedy will serve as executive producer on new Star Wars feature films, with George Lucas serving as creative consultant.  Star Wars Episode 7 is targeted for release in 2015, with more feature films expected to continue the Star Wars saga and grow the franchise well into the future.

 The acquisition combines two highly compatible family entertainment brands, and strengthens the long-standing beneficial relationship between them that already includes successful integration of Star Wars content into Disney theme parks in Anaheim, Orlando, Paris and Tokyo.

 Driven by a tremendously talented creative team, Lucasfilm’s legendary Star Wars franchise has flourished for more than 35 years, and offers a virtually limitless universe of characters and stories to drive continued feature film releases and franchise growth over the long term.  Star Wars resonates with consumers around the world and creates extensive opportunities for Disney to deliver the content across its diverse portfolio of businesses including movies, television, consumer products, games and theme parks.  Star Wars feature films have earned a total of $4.4 billion in global box to date, and continued global demand has made Star Wars one of the world’s top product brands, and Lucasfilm a leading product licensor in the United States in 2011. The franchise provides a sustainable source of high quality, branded content with global appeal and is well suited for new business models including digital platforms, putting the acquisition in strong alignment with Disney’s strategic priorities for continued long-term growth.

 The Lucasfilm acquisition follows Disney’s very successful acquisitions of Pixar and Marvel, which demonstrated the company’s unique ability to fully develop and expand the financial potential of high quality creative content with compelling characters and storytelling through the application of innovative technology and multiplatform distribution on a truly global basis to create maximum value.  Adding Lucasfilm to Disney’s portfolio of world class brands significantly enhances the company’s ability to serve consumers with a broad variety of the world’s highest-quality content and to create additional long-term value for our shareholders.

 The Boards of Directors of Disney and Lucasfilm have approved the transaction, which is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, certain non-United States merger control regulations, and other customary closing conditions.  The agreement has been approved by the sole shareholder of Lucasfilm.


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