Disney's merger with Pixar doubted

LOS ANGELES — The more time that passes without a new distribution deal between The Walt Disney Co. and Pixar Animation Studios, the greater the speculation, including a theory that Disney is angling to buy Pixar and install its chief executive, Steve Jobs, as Disney's chairman.

Analysts believe a new distribution deal is likely — and soon. But they dismiss the notion that Disney would buy Pixar. An outright purchase would be too expensive, analysts say, and would not be wise for either company in the long term.

"I think it's absurd," said David Miller, an analyst with Sanders Morris Harris. "It would have to be an enormously compelling offer to even have Mr. Jobs stop and consider it for maybe more than five seconds."

Still, guessing the terms of a deal has become a bit of a sport on Wall Street, with speculation pushing Pixar shares higher in recent days.

Most analysts who cover both companies believe Pixar will soon announce a new deal that has Disney distributing its highly popular — and profitable — animated films. Its current agreement with Disney expires later this year when Pixar delivers its latest film, "Cars."

During an earnings conference call last November, Jobs said of Disney: "We will know if we are going to continue our relationship with them by the end of this year."

That target date has come and gone with no elaboration from either side on the status of the talks, thus fueling the current rumors.

Renewed speculation about a deal helped drive up shares of Pixar nearly 8 percent to $58.16 last Wednesday. Another possible trigger for the sudden jump was the expansion of an earlier deal between Disney and Jobs' other company, Apple Computer Inc., to provide more entertainment for download on Apple's iPod.

Shares dropped back to $56 the next day and have been trading around that price since. Shares fell 37 cents to $56.04 at the end of regular trading Tuesday on the Nasdaq Stock Market.

"Something has to happen soon," Marla Backer, an analyst at Research Associates Llc, wrote in a recent report.

The current Disney-Pixar deal expires with the June 9 release of "Cars." Marketing plans for Pixar's 2007 release, tentatively titled "Ratatouille," must be made soon.

"We continue to believe that a deal gets done with Disney that offers Pixar better economics and greater control of its characters," Backer wrote.