The Human Side of Merging Cultures: Lessons From Disney-Lucasfilm
How Bob Iger acquired George's Lucas worlds
Hey there, this is Uri (@rboriol). Welcome to Artefacts, where I share questions, learnings and stories on building company culture.
The Human Side of Merging Cultures: Lessons From Disney-Lucasfilm
In the last post, we discussed the founders' crucial role in shaping their organisations' culture. It's no secret that mergers and acquisitions can be emotional for all employees, but it's especially true for founders. Managing these emotions can make all the difference in the deal's success.
Today, we'll delve into the story of Lucasfilm's acquisition by Disney. We'll explore how smartly managing the emotions of the founder led to one of the most successful deals in the entertainment industry. We will also find many of what I call “ephemeral artefacts”, which are crafted to signal messages that can be difficult to express in words. But first, let me set the scene for why I chose this topic.
It's all about people and culture.
I was listening to last week’s Itnig podcast with Alex Cruz (founder of Clickair and CEO of Vueling and British Airways) when something he said inspired me to write this post (watch the exact clip here). Alex was asked: you became the CEO of Vueling after the merger with Clickair; how was that process? Among other things, he stressed the importance of managing the human side:
I also met with many people who had done company mergers and realized that most of the people who had done mergers gave me technical recommendations. But a person made a recommendation strictly to do with people management. Because when you do a merger, there are some who leave, and there are some who stay. Those who remain lose their friends, feel guilty for staying, etc. And for me, the key to the success of the merger was that from the beginning, we understood that we had to manage the people in that change by level, by department, because there were different balances of people from Clickair, from Vueling, etc.(…) I think we eventually created an identity that was Vueling, but it was a different company that had renewed its values. And I think we managed to have a very powerful team. The fact that we grew from 35 to 103 planes when I left and managed, doing the things we did, is a testament to that care for the people, how they think, and how they evolve and achieve fulfilment. Probably that was the greatest achievement. The money, the routes and everything else are almost secondary.
Listening to him brought back memories of when TravelPerk acquired Click Travel. We knew we had to make integrating cultures a central part of the operation. At every level, employees involved in the project understood how critical it was for the acquisition that people knew and felt it was all about them. It was challenging, but also one of the most fulfilling projects I’ve ever been part of. There’s nothing like helping people belong.
Trying to think of other examples illustrating the human side of M&A, Bob Iger and George Lucas came to mind.
Bringing Two Empires of Storytelling Together: Disney's Acquisition of Lucasfilm
Setting the scene
Disney is one of the companies that inspires me the most, so this is probably not the last time I’ll reference it here in Artefacts. Bob Iger (Disney’s CEO for almost two decades) wrote the book “Ride of a Lifetime” and filled it with anecdotes about what happens behind the scenes at the company.
The story of Disney's acquisition of Lucasfilm for $4.05 billion in October 2012 is quite interesting when it comes to culture during M&A. Lucasfilm was the company that created Star Wars. Its owner was George Lucas. We’ll have to leave George’s story for another day because it is incredible.
The Lucasfilm-Disney acquisition was not a quick deal. Quite the opposite if you look at how long they had known each other. Their first interaction was in the mid-80s when Disney made a licensing agreement with Lucasfilms to build Star Wars-themed attractions in Disney parks. George and Bob had not been strangers either for almost 30 years, since Bob agreed to air George's "The Young Indiana Jones Chronicles" on ABC Entertainment in 1992.
Managing emotions since day one
My biggest takeaway from this story is how bright Bob was at reading the founder-centric culture Lucasfilm had and using it to manage the emotions of the deal. You can tell from how he prepared for the first conversation. In his own words: “I’d been thinking about how to approach George in a way that wouldn’t offend him with the suggestion that he sell us the marvellous worlds that he’d created”.
And so, he set the scene in their first chat in May 2011. It was during the opening of Star Wars attractions at Disney World and Disneyland. Bob would typically not attend these events, but he decided to do so that day. This gesture was the first ephemeral artefact Bob created. And the meaning behind it was clear: I care about you, so I’ll come to you on a special day for you. Knowing emotions would be critical to getting the deal done, he tackled them upfront.
So they would have the whole place to themselves in total privacy, he set up breakfast at a restaurant that only opened at lunchtime. Another sign he sent, another artefact was born: this will be managed directly by me, and if you don’t feel comfortable talking about it, no worries, no one else needs to know. George’s wife was also invited to the breakfast, the third artefact: I know who you trust, and I trust them too.
They had not touched on the topic of acquisition yet. George might have started to guess it after entering the restaurant, but no one had made anything explicit. Again, emotions were Bob’s primary concern for now. Halfway through breakfast, Bob brought up the topic in the most careful way: I tried to be clear and direct without offending him. And so he said:
"I don't want to be fatalistic, George, and please stop me if you would rather not have this conversation, but I think it's worth putting this on the table. What happens down the road? You don't have any heirs who are going to run the company for you. They may control it, but they're not going to run it. Shouldn't you determine who protects or carries on your legacy?"
To which George replied:
“I’m not ready to sell, but you’re right. And if I decide to, there isn’t anyone I want to sell but you. (…) You did Pixar right, you took care of them. If I get around to it, you’re the only call I’ll make. (…) When I die, the first line of my obituary is going to read “Star Wars creator George Lucas”.
Like that, the negotiations started.
It was clear that those conversations were not about acquiring just a company. And Bob understood it perfectly: “This wasn’t negotiating to buy a business. It was negotiating to be the keeper of George’s legacy, and I needed to be ultra-sensitive at all times”. Yet, at the same time, Bob had an obligation to achieve what was most beneficial for Disney, and he couldn't satisfy all of George's demands.
Having made it clear that he’d give time for George to decide if he wanted to pursue the negotiations, he waited. Finally, a few months later, George reached out. The negotiations started.
Price was an issue initially, but they managed to land on a number that satisfied both of them. Yet the real problem was still to come: Lucas wanted to retain creative control over the ongoing Star Wars saga.
The main artefact was at play
Iger couldn’t let George keep creative control. The core value of Lucasfilm for Disney was precisely the ability to expand the Star Wars universe as much as they saw fit. That capability would yield Disney excellent returns, which justified the enormous investment they sought to make. Keeping George in control of his kingdom would be like not owning the company they were acquiring.
But that was precisely the core of Lucasfilm’s culture. George had created a magical world by himself, and he wanted to be kept as its sole protector. You don't have to dig deep into the company to find an artefact representing that vital piece of the culture: the company is named after George Lucas himself. That was, by no means, a coincidence.
At that point, all negotiations hinged on giving up what made Lucasfilm, well, Lucasfilm. He needed to detach a founder-centric culture from its founder. Separate the author from its creation. As Iger had anticipated, emotions were front and centre. It wouldn’t be an easy pill to swallow.
Things got heated. The profound disagreement caused both parties to walk away from the table and call the deal off. Twice.
The final act
Thanks to some non-trivial fiscal deadlines that would cost Lucasfilm a significant loss if the deal didn’t take place before the year's end, George was pressured to come back to the table. He did so with outlines for the next 3 movies of the saga. He had envisioned what should be next for Star Wars. If his guidance was going to be considered, he was willing to give up creative control. Although Bob did not commit to using them, he agreed to consider them. And so there was light for the deal to go through.
After some final back and forth, the deal was finally signed on October 20, 2012. Disney had acquired and kept creative control of Lucasfilm for $4.1 billion.
George hoped that they would respect his storyline suggestions. Sadly, that was not the case. The creative team in charge of the first movie (The Force Awakens), led by J.J. Abrams, made the decision to pursue a different direction. George was deeply disappointed. Iger expresses in his book that while he doesn’t regret supporting that decision, he does wish he’d not surprised George. He believes he could have managed George’s emotions better even after closing the deal. A bittersweet end but an unparalleled achievement.
A lesson in managing founders and cultures
The Disney-Lucasfilm acquisition is a prime example of how carefully understanding the emotions of a founder can lead to a successful venture. By reading the founder-centric culture George Lucas had built at Lucasfilm, and how he felt about it, Bob Iger was able to secure a deal that significantly impacted the entertainment industry. This is a reminder that while technicalities and financials are essential in M&A, the human element can often be the determining piece of the puzzle.
May the force be with you. I'll be back with more soon.
Uri
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