These guys were Tom Murphy and Dan Burke. Over the years, theyâd built Cap Cities, starting a small television station in Albany, New York, acquisition by acquisition. With help from Tomâs close friend Warren Buffett, who backed the $3.5 billion deal, they were able to swallow our much larger company. (As Tom Murphy put it, they were âthe minnow that ate the whale.â)
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Academics who have studied this stage call it âcapital market myopia.â In a famous 1987 case study, William Sahlman and Howard Stevenson showed how dozens of entrants into the then emerging Winchester disk drive industry blew through a mountain of investment, each hoping for a small share of a vast market. Such phenomena occur when players make decisions that are individually sensible but fail to take into account the collective consequences of everybody making the same decision.
Tom and Dan were the perfect bosses in this regard. They would talk about valuing ability more than experience, and they believed in putting people in roles that required more of them than they knew they had in them. It wasnât that experience wasnât important, but they âbet on brains,â as they put it, and trusted that things would work out if they put talented people in positions where they could grow, even if they were in unfamiliar territory.
Over the course of the next month, Tom and Steve went over the possible financial structure in great detail and arrived at a price: $7.4 billion. (It was an all-stock dealâ2.3 Disney shares for each Pixar share, and netted out to $6.4 billion because Pixar had $1 billion in cash.) Even if Steve stopped just short of being greedy, it was still a huge price, and it was going to be a tough sell to our board and to investors.
Bob Daly, who was then co-chair of Warner Bros., called me and said I should talk to Alan Horn about serving as an adviser to Rich. Alan had been pushed out as president and COO of Warner Bros. He was sixtyeight at that point, and though he was responsible for several of the biggest films of the past decade, including the Harry Potter franchise, Jeff Bewkes, Time Warnerâs CEO, wanted someone younger running his studio.
A few months before we closed the deal, George hired the producer Kathy Kennedy to run Lucasfilm. Kathy had cofounded Amblin Entertainment along with her husband, Frank Marshall, and Steven Spielberg, and had produced E.T. and the Jurassic Park franchise and dozens of critical and commercial hits. It was an interesting move on Georgeâs part. We were on the verge of buying the company, but he suddenly decided who was going to run it and ultimately produce the upcoming films. It didnât upset us, but it did come as a surprise, just as it surprised Kathy to learn that the company she was agreeing to run was about to be sold!