Dunn could predict that Jobs would muster the courage to make a decisive break with Michael Eisner.
But what he hadn't anticipated was that Jobs would go all-in, selling Pixar to Dunn Pictures!
Pixar had long been a prize Dunn coveted, a gem he'd wanted to claim for himself. After all, it was the world's top animation studio! Beyond that, Pixar boasted a robust software development division. Many of the tools used in Pixar's animations were developed in-house—even the current Mac interface and the USDZ format for future AR experiences were products of collaboration between Apple and Pixar.
Pixar also excelled at video post-production and visual effects enhancement. Once streaming video platforms took off, that expertise would be a goldmine, perfectly complementing a partnership with Netflix.
"Steve, honestly, this decision of yours is shocking!" Dunn said sincerely.
Jobs looked at him calmly. "I'll say it again: buying out the contract doesn't benefit me, but I'm also not about to let Michael Eisner have it easy. So… that leaves you to step in."
Dunn couldn't help but laugh and groan at the same time.
Unilaterally terminating a contract might be legally sound, but in a Western culture that prized integrity, it'd still leave a stain on one's reputation. Jobs had a wild streak back in his Apple days, earning himself a bad name that got him ousted from the board by Wall Street-controlled shareholders. Now, it seemed he was once bitten, twice shy.
He wanted to strike back at Michael Eisner without tarnishing his own image, and selling Pixar to Dunn was a clever move—a win-win for him.
If Pixar ended up in Dunn's hands, would its distribution deal with Disney still stand?
Jobs was clearly using Dunn to teach Michael Eisner a lesson!
Dunn, of course, was delighted. "Alright, I get what you're driving at. I'm Pixar's second-largest shareholder with 15% of the stock. To be honest, I always figured I'd acquire Pixar someday—I just didn't expect it to happen this soon."
Jobs replied, "Over the past few days, I've spoken with the shareholders. I told them I'm done with Disney—no more dealings! Pixar's films will be scratched from Disney's lineup. They didn't agree with my call, though."
Dunn grinned. "But you're the majority shareholder, with over 50% of the stock—absolute control. Their objections don't hold water, right? To cash out before Pixar's stock tanks, they'll have to go along with your plan to sell. Still… Steve, you're playing too soft. With that kind of control, you could do whatever you want at Pixar. They've got no say!"
Jobs shook his head. "I don't want to strain things with the investors. But selling Pixar to Dunn Pictures? That's a decision I've already locked in."
Dunn nodded, flashing a small smile. "No problem. At Pixar's current stock price, plus a 10% premium, I'll buy it all out!"
With Pixar's market value topping $1.8 billion, a premium acquisition meant Dunn Pictures would shell out at least $2 billion!
Luckily, Dunn Pictures was flush with cash—over $8 billion on the books!
Spending $2 billion to snag Pixar would leave $6 billion. Buying Universal Pictures with that might be a stretch, but it wasn't an issue. Dunn Pictures had almost no debt and could easily borrow to make it happen.
John Lasseter sat quietly off to the side. This wasn't a conversation he could chime in on. With less than 3% of Pixar's shares, he deferred to Jobs entirely.
Glancing at Dunn seated just ahead to his right—a young guy whose face still carried a hint of youth—was this really about to be his new boss?
John shook his head, marveling at how strange the world could be.
Jobs spoke gravely, "The acquisition… Dunn, you can't do it with cash. That approach comes with too many hurdles and wouldn't help stabilize the new company."
"Hm?" Dunn raised an eyebrow. "You mean… stock?"
Jobs nodded. "A mix of cash and stock swaps is the best way. Shareholders who want to cash out can take the money and go. Those who believe in the new company can hold onto their shares. Honestly, I've got high hopes for you—I'd even be fine without taking a dime in cash."
Cash deals weren't the norm for big mergers since shareholders cashing out had to pay capital gains tax. Stock swaps dodged that tax entirely.
Holding stock was the biggest, safest tax shelter in the U.S.!
Take Buffett, the country's second-richest guy. He paid just a few million in taxes each year because his wealth was tied up in stocks. No matter how high they climbed, as long as he didn't sell, there was no capital gains tax—just a 20-30% dividend tax when his holdings paid out.
Per Jobs' plan, Pixar shareholders who doubted the new company's future could cash out; those who trusted Dunn's vision could opt for stock in the new entity. (Even unlisted companies could issue stock—it just couldn't trade freely on exchanges.)
Dunn's expression soured a bit.
Why hadn't the Dolby Labs acquisition gone through yet? Because Dr. Dolby and his son weren't happy with an all-cash deal—too much tax. They wanted a "cash-plus-stock" arrangement.
The hitch? Dunn Pictures was still a private company, wholly owned by Dunn himself, with no stock restructuring done yet.
Dunn's expectations for his company were sky-high, so he'd poured nearly all his funds into it. As Dunn Pictures expanded across film, TV, and animation, its valuation would only soar!
The earlier he restructured shares, the more he'd have to give up for the same equity stake—which was why he'd held off on reorganizing the ownership structure.
But with Dunn Pictures growing this big, skipping that step made acquiring other high-potential companies tougher by the day.
First it was Dolby Labs; now it was Pixar!
Equity deals often outshone cash offers in appeal!
Jobs seemed to read Dunn's mind. "Dunn Pictures has a massive business portfolio now. Managing a company this size takes more than cohesion through slogans or a mission. Sure, 'New Order, New Model, New Force, New Hollywood' is a grand vision, but shared interests tie people together tighter!"
Dunn shook his head, giving Jobs a half-smile. "Steve, you've got me pinned, don't you?"
"I don't follow."
Jobs looked perfectly unruffled.
Dunn said pointedly, "I'm starting to feel like you're setting me up here. On the surface, it looks like Michael Eisner ticked you off, so you're selling Pixar to Dunn Pictures to spite him. But now I'm wondering… is your real target Dunn Pictures? You heard I'm gunning for Universal Pictures and shifted all my funds here. You think Dunn Pictures has a brighter future than Pixar! So you're jumping in early, before it goes public, swapping Pixar stock for Dunn Pictures stock. That's one heck of an investment!"
Jobs burst out laughing. "Dunn, you're too full of yourself!"
Dunn locked eyes with him. "Just tell me if it's true or not."
Jobs sidestepped the question, saying, "True or not, does it matter? Pixar's future can't stand alone—it needs a big film company to lean on. All its shareholders thought Disney was the best bet, but right now… this is the moment to hand Pixar over to Dunn Pictures."
They'd known each other for a year now, and Jobs was blown away by Dunn's insight and vision. Despite his youth and obvious flaws, Jobs was convinced Dunn could carve out a legacy in Hollywood.
If he had a choice, Jobs would pick Dunn Pictures over Disney for Pixar any day!
Michael Eisner's public jabs at Jobs had given him the perfect excuse to flip the table and convince Pixar's shareholders to sell to Dunn Pictures.
Dunn mulled it over for a long while before chuckling wryly. "Steve, you've got me working for you, huh?"
Jobs lit up instantly.
Dunn's simple words carried big implications—first, Dunn Pictures would restructure into a stock-based company; second, it'd acquire Pixar with a "cash-plus-stock" deal; and finally, Jobs would become a shareholder and board member of Dunn Pictures!
"Working for me? That's a stretch! Pixar's scale doesn't even come close to Dunn Pictures. Rough guess, my stake wouldn't top 8% of the new company! If anyone's working for someone, it's me for you—your 16.5% in Apple says it all!" Jobs was in high spirits.
Dunn grinned too. "At Apple, you make me money; at Dunn Pictures, I make you money. Fair trade!"
---
March 8, 2002—International Women's Day
On this day, Dunn Pictures dropped a bombshell: they'd team up with Wall Street titan Citibank to restructure the company's shares and underwrite an internal sale of original stock.
Per Citibank's numbers, Dunn had pumped $8.5 billion into the company, with a total of 850 million shares. This private placement would offer 50 million shares at $10 each, exclusively to Dunn Pictures employees.
That's $500 million to raise—way more than the staff could handle.
Take Bill Mechanic, the guy with the biggest allocation at 6.5 million shares. Could he cough up $65 million in cash for that? Scrape every penny from his pockets, and he'd maybe cover half!
The other employees were in the same boat.
$500 million might be pocket change for Dunn Pictures, but in a sluggish economy, it was a fortune anywhere else.
With fewer than 2,000 employees, there was no way they could fully subscribe to 50 million shares.
So what about the leftover stock?
Simple—it was Women's Day, after all!