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Negotiations

Final Assignment

Student: Pakos Spyridon Professor: Dr. S. Voliotis

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On October 30, 2012, the US based multinational mass media and entertainment company Walt
Disney announced that it would acquire Lucasfilm. A so called “Mega-deal” was on its way, valued at $ 4.05
billion, equally split between stocks and cash. The deal was sealed after negotiations that took over a year
and a half, and for Disney it was the third significant acquisition after the buyouts of Marvel and Pixar.
Being in a highly competitive market, Disney was seeking the growth through acquisitions in order to
reverse its poor performance showed over of the last past years. A new strategy was to be implemented to
ensure their sustenance in the market by attracting new audiences. Disney’s acquisition of Lucasfilm was an
important milestone in the company’s new strategy. In 2012, one of the greatest sales contracts in the movie
history became true as a result of long negotiations between Robert Iger, the CEO of Walt Disney, and
George Lucas, the founder and owner of Lucasfilm. The negotiation between the two parties, which will
further be analyzed below, was a long process of building trust and using strategies to create more value for
both counterparts.

The Companies

The Wald Disney Company
The Wald Disney Company, founded on October 16th, 1923 by Walt and Roy Disney, is one of the
most famous companies in the animation industry, well known for providing high class entertainment, with
international theme parks and resorts, and a world-class animation studio and business franchise, including
an immense portfolio in consumer products.
Since becoming Disney’s CEO in 2005, Robert A. Iger has aggressively expanded the company beyond
its traditional activities. On January 23, 2006, it was announced that Disney would purchase Pixar. The deal,
valued at $7.4 billion. Three years later, on August 31, 2009, Disney announced a deal to acquire Marvel
Entertainment for $4.24 billion. These heavily- expensive, but ingenious acquisitions reflect Disney’s focus on
branding and leveraging well-known and well received businesses.
On October 30, 2012, Disney announced Lucasfilm?s acquisition in a deal valued at $4.05 billion.
Disney announced its intention to leverage the Star Wars franchise across its business- segments, and
planned to produce a seventh installment in the main film franchise for release in 2015. The Lucasfilm
acquisition could turn out to be Iger’s last big move at Disney. He planned to step down as CEO in 2015.

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Disney’s timeline from founding until Lucasfilm?s acquisition

The Lucasfilm Ltd
Lucasfilm Ltd. is one of the leading American entertainment production companies, founded by the filmmaker
George Lucas in 1971. The company best known for producing films like the Star Wars and Indiana Jones is based in
California.
Lucasfilm has been a pioneer in developing new film technology in special effects, sound, and computer
animation. Because of their expertise, its subsidiaries like Skywalker Sound and Industrial Light & Magic (ILM) often
helped non-Lucasfilm productions. Alone Skywalker Sound offered every year its sound services to more than 100
productions. In 2012, Lucas hired Kathleen Kennedy as a CEO and co- chairman of Lucasfilm. Today and after its
acquisition in 2012, Lucasfilm is a subsidiary of The Walt Disney Company.

Lucasfilm?s timeline from founding until its acquisition by Disney

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Lucasfilm had previously collaborated with Walt Disney to include Star Wars and Indiana Jones attractions in
various Walt Disney Parks and Resorts all over the Globus.

The negotiation

On May 2011, Iger visited the Walt Disney World Resort in Florida for the opening of Star Tours: The
Adventures Continue attraction. George Lucas would also be there, since he was involved in the implementation of the
project. Iger’s intention was to meet Lucas, since he was the sole shareholder of Lucasfilm. He invited Lucas having
together breakfast on the morning of the Star Tours opening at the Hollywood Brown Derby. The restaurant was closed
only for the two men so that they could speak without being disturbed and observed by others. The two had a small
talk the opening of Star Tours and their presence at the opening ceremony. Then Iger asked Lucas if he would ever think
about selling his company (Leonard, 2013).
Lucas answered that he was thinking about retiring, since he recently became 67 years old. Furthermore, he
had already restructured Lucasfilm, so as to be independent of him. But he stated that he was still not ready to go that
step, because he wanted to bring forward some of his existing projects. Lucas ensured Iger, he would come back
discussing his offer if he was ready for. Iger told Lucas to call him when would get ready, and they both went to
celebrate the Star Tours opening.
In the meanwhile, George Lucas had already evaluated the information on how Disney had handled Pixar’s
acquisition. Pixar’s creative team and management could further maintain their roles in the company. Following, he
thought he could keep some influence over Star Wars if he sold Lucasfilm to Disney. In order to empower this influence
he asked Kathleen Kennedy, one of the more powerful women in the entertainment business (founder of Amblin
Entertainment, producer of Jurassic Park and Schindler’s List), to become the CEO and co-chairman of Lucasfilm. Lucas
did this knowing that Disney would leave her in that position, after seeing the heads of Marvel and Pixar stay in place.
Kennedy accepted Lucas?s proposal and they both immediately started about starting initiatives so as to push up the
franchise and built up the company for the time after Lucas retirement.
Later, Lucas and Kennedy decided to start working on the new episodes of Star Wars VII, VIII, IX. They hired the
famous screenwriter Michael Arndt to start work on the script for Episode VII and they contacted ex- casting members
of Star Wars, like Mark Hamill, Carrie Fisher, and Harrison Ford. Lucas was sure, that by doing the above mentioned
contacts, he would manage to increase the value of Lucasfilm.
In June 2012, Lucas called Iger in order to continue their discussion about selling Lucasfilm to Disney. The
second round of negotiations lasted over five months. Lucas?s proposal to Iger was to hand over the company and its
subsidiaries but so as to maintain the company’s structure intact. Lucas insisted that he and his executives- team should
further keep the control of Star Wars, since they were familiar with Star Wars and Lucasfilm?s franchise.

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Iger could follow Lucas’s concerns and he really recognized the knowledge Lucas and his team would bring over
Star Wars, its characters and the chronology. He then offered Lucas some autonomy over Star Wars. But at the same
time he made Lucas clear that Disney would have final say over any future movies (Leonard, 2013).
Lucas agreed, but he also insisted in making the story treatments for the final Star Wars Trilogy part of the
acquisition agreement. At the beginning, Iger seemed to agree with that, but he first wanted to take a look at the
scripts. Lucas was not ready to hand them over, telling Iger he had to trust him saying that the scripts were great. But in
September 2012 Lucas agreed to hand them out to a limited number of people by getting a non- disclosure agreement.
The scripts could only be read by Iger, Horn, and Kevin Mayer, Disney’s executive vice president for corporate strategy.
Iger finally gave Lucas a feedback about the scripts, telling him they had a good story. Last but not least, he
expressed towards Lucas the risks Disney would undertake due to the uncertainty in the global market and because of
the fact, that they still had not a definite answer about the casting of the films (Leonard, 2013).
On October 30, 2012, Disney acquired ownership of Star Wars, Indiana Jones, and Lucasfilm’s operating
business in film production, consumer products, video games, animation, visual effects, and audio post-production (e.g.
ILM, Skywalker Sound) (Leonard, 2013). A deal valued at $ 4.05 billion, equally split between stocks and cash, that
ensured Lucas position as a consultant and made him the second largest Disney- shareholder after the Laurene Jobs
Trust.

Was this a distributive or an integrative negotiation? Did each side treat the negotiation as integrative or
distributive? Was the approach each side chose correct or not?

In order to specify the way the counterparts negotiated, we have to define the above mentioned types of
negotiations. A distributive negotiation is the typical negotiation where counterparts negotiate to get a cut out of a
fixed pie, and only distribute value. If the one side wants more the other side has to pay more and vice versa. In this
case negotiations are seen as a win/ lose situation. The parties have a strong focus on themselves and ignore the
interests of the other party. The negotiators only work with a few variables and have narrow focus, e.g. on price, bonds,
liability, and risk with no regards to whether a change might the business of your partner and vice versa.
On the other hand, the integrative negotiation is about getting focus away from price and instead increases the
size “of the pie”. The core of the theory is to identify every negotiation variable and area between the parties that hold
potential value and negotiate together for optimal utilization. Uncovering and integrate the underlying needs and
interests of both parties are key. Together the parties will analyze what drives the cost and/ or creates value in the
process. By doing this, the parties are able to support a negotiation climate that inspires openness and willingness.
Following the whole negotiation process between Iger and Lucas, it is obvious that both parties used an
integrative negotiation strategy. Based on trust, both parties had to feel as if they could win something in the deal.
They negotiated in such a way that they took the other party’s wants, needs, fears, and concerns into the equation.
Both Iger and Lucas were not simply worrying about losing less than the other counterpart. They were both looking for a
solution in which both parties could win something to finalize the deal.

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As already told, the negotiation had to be based on trust. And this was mutual achieved by the two
negotiators. Firstly, both counterparts gave each other the time needed to develop trust. The negotiations lasted for a
year and a half. Although they knew each other through prior collaboration in the Theme-parks, the acquisition would
imply big personal and corporate changes. Furthermore, Iger wasn’t denying to Lucas about the fact that he was really
interested in acquiring Lucasfilm. As Lucas asked Iger to include the scripts for the new Star Wars films in the deal, Iger
provided his intention of doing this.
On the other hand Lucas sends a signal of trust to Iger, by saying that he would come back to his proposal, if he
would get ready for selling his company. He also signalized that Disney would be the right home for his baby Lucasfilm.
Iger showed counterpart assessment; he knew he had to talk with Lucas, the sole shareholder of Lucasfilm. He
was also aware of Lucas’s values concerning the future of Star Wars. A further signal of the importance was that Iger
called Lucas so as to meet him personally and discuss, instead of using another means of communication.
The discussion took place in a very friendly environment. They started discussing about the opening of Star
Tours and Iger asked if he was satisfied with the result of the project.
Active Listening was also the case. Iger understood Lucas about his intention to retire and he wasn’t pushing
Lucas to give an answer during their first meeting. He more offered Lucas the chance to come back discussing when he
got ready.
From May 2012 until June 2012 Lucas worked hardly in his best alternative to a negotiated agreement
(BATNA). He knew that strengthening his BATNA, he might improve the deal. So, Lucas worked on enhancing the value
of Star Wars for Disney and other potential buyers by hiring Kathleen Kennedy, as already above described, and by
starting the implementation for a new Star Wars trilogy. In addition to that they hired a famous screenwriter for the
next film, and they talked to Mark Hamill, Carrie Fisher, and Harrison Ford, about the possibility of taking part in to
Episode VII (Shonk, 2018).
At the same time, Lucas was aware that handing Lucasfilm over to Disney would bring Star Wars and Indiana
Jones back into life and cause a lot of synergies. His target was to be part of the new era of Star Wars and the synergies.
So in June 2012, Lucas contacted Iger and proposed to go further with the acquisition under the condition that the
structure of the company would remain the same. A proposal easily accepted by Iger, since he was aware of Lucas?s
legacy and his knowledge about the characters and the chronology of Star Wars. At the end, both parties recognized
they wanted the same thing: to completely satisfy the Star War fans and achieve the best result for the company’s
shareholders. Both of the counterparts were willing to make the deal and not to blow up the whole process. The two
parties made a concession: Lucas would keep residual influence over the franchise and Disney would have the final say.
Last but not least, Lucas tried to expand the “pie” and move the negotiation forward by giving a small team of
Disney’s executives the chance to read the Star Wars script, and asking for a pre- disclosure agreement in return.
Each side implemented an integrative strategy and in my opinion, they both did pretty well. The deal became
true and both parties could maximize the possible outcome, without jeopardizing the process at all stages. Iger as well
as Lucas were very patient and they provided a high level of skills. Both of them were looking all the time for underlying

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interests and needs behind the other side’s position. Furthermore, they provided an attitude and belief that working
together will create a better outcome of the negotiation.
Moreover, they were both able to ask but even more carefully listen to the other side. Iger and Lucas clearly
identified their own BATNA and the one of their counterpart. Because of the trust they showed to each other, the
parties were ready to present offers and ask for something in return. A “win-win” deal got achieved.

Focusing purely on the financial aspects of the deal, evaluate the negotiating outcome for each side.

Financially both parties have benefitted from this acquisition. First of all Lucas became about $ 4.05 billion,
equally split between stocks and cash. Considering the fact that Lucas’ entire net worth was estimated in 2012 by
Forbes to only $3.3 Billion when including his companies, it seems that it was a fantastic deal for Lucas (Powell, 2018).
In addition to that, Lucas became Disney’s second largest shareholder. So, he had the benefits of the rapid
increase of the company’s stock price after Lucasfilm?s acquisition from 2012 until 2018 (see diagram below).

Disney’s stock- price (source: https://www.macrotrends.net/stocks/charts/DIS/walt-disney/stock-price-history)

The latter resulted also a gain for Disney. The time after Lucasfilm?s acquisition, from year 2012 until 2018,
Disney’s value almost tripled. Additionally, it was a good investment for Disney since they knew that in the past
Lukasfilms?s profits from its films were in some cases ten times more than the actual film production- costs. This was a
fact, smoothing Disney’s risk of investing this big amount of money to Lucas.
Disney became in a time less than five years the proof of making the right investment: “Episode VII – The Force
Awakens”, “Rogue One – A Star Wars Story” and “Episode VIII – The Last Jedi” were well received by the Star Wars- fans
and all three became good critics. According to the American news site Qz.com, the three films almost re-recorded the

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$4 billion purchase price. The financial benefit could significantly increase further, since Lucas maintained a database
with 17.000 characters in the Star Wars universe, living in thousands of planets over a time span of 20.000 years
(Leonard, 2013). Not to mention the hundreds of millions Disney could additionally globally generate in consumer
products and licensing.

Focusing now on all aspects of the deal, evaluate the negotiating outcome for each side.

We have to take into consideration that Lucas was initially not after the money. He was emotional more
concerned about the future of his Star Wars Legacy. Everybody should continue to combine his name with Star Wars.
So, he actually tried to keep creative control of his movies. And this is a target of him he got Iger to agree on. He
became a consultant for the future Star Wars films and his story treatments for the final Star Wars Trilogy were also
included in the contract. One more gain for Lucas was the opportunity of being active as a decision maker in the new
company, due to the number of shares he owned.
Furthermore, Iger ensured Lucasfilm creative team?s autonomy under the command of Kathleen Kennedy, CEO
and co- chairman of Lucasfilm, as it was the case after the buyout of Pixar and Marvel. But he had for sure to give up to
Disney the ultimate decision making.
In addition to that, since Lucas assured Lucasfilm?s future, he would now have more time and money to make
more experimental movies and satisfy his emotional needs. Something he really wanted to do after his retirement.
The deal suited also perfectly into Iger’s plan for Walt Disney. After Pixar’s and Marvel?s purchases, for $7.4
billion $4 billion respectively, he wanted to further secure the company’s creative and competitive future. For Disney,
Lucasfilm was more than only Star Wars. A reason for the great success of its film productions were the special effects
and the services of its subsidiaries, like the ILM (Industrial Light & Magic- visuals effects) and the Skywalker Sound.
Consequently, the deal made sense from a strategic perspective. Disney as a world class studio could now
continue the Star Wars franchise, producing great movies and maximize the Star Wars fan base all over the world.

Both parties made concessions, but ended up with creating more value than initially on the table. The Star
Wars movies created by Disney and Lucasfilm made significant high turnovers and earned excellent movie critics.

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References:

1. Leonard, David (2013). How Disney Bought Lucasfilm—and Its Plans for ‘Star Wars’. Bloomberg
Online, 2013. Retrieved from https://www.bloomberg.com/news/articles/2013-03-07/how-disney-
bought-lucasfilm-and-its-plans-for-star-wars
2. Powell, Kyle (2018). The Negotiation Breakdown Regarding Disney’s Acquisition of Lucasfilm.
LinkedIn Online, 2018. Retrieved from https://www.linkedin.com/pulse/negotiation-breakdown-
regarding-disneys-acquisition-lucasfilm-powell/
3. Shonk, Katie (2018). Star Wars Stories: George Lucas and a Strong BATNA, Passed Over. Program On
Negotiation Online, 2018. Retrieved from https://www.pon.harvard.edu/daily/batna/star-wars-
stories-george-lucas-and-a-strong-batna-passed-over/

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