Disney is on the cusp of becoming the 100% owner of Hulu.
The media conglomerate announced that it expects to pay $8.61 billion to Comcast to acquire the cable operator’s 33% stake in Hulu following Comcast’s Nov. 1 exercise of its right under the put/call arrangement between the two companies. Disney owns the other two-thirds stake in Hulu.
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“The acquisition of Comcast’s stake in Hulu at fair market value will further Disney’s streaming objectives,” Disney said in a statement Wednesday.
Under the terms of the sale arrangement, by Dec. 1, Disney said, it anticipates that it will pay Comcast approximately $8.61 billion, representing NBCUniversal’s one-third stake of the $27.5 billion guaranteed floor value for Hulu that was set when the companies entered into their agreement in 2019 minus the anticipated outstanding capital call contributions payable by NBCU to Disney of approximately $567 million.
But the deal is not officially done — and $8.61 billion might not be the final price tag Disney ultimately pays for the Comcast/NBCU stake in Hulu.
The two sides have been far apart on the question of Hulu’s market value. Comcast CEO Brian Roberts, at a Goldman Sachs conference on Sept. 6, touted Hulu as “a scarce, kingmaker asset” — and suggested an eyebrow-raising value. According to Roberts, the “synergies” Hulu would afford a full owner are worth $30 billion, even before accounting for the value of Hulu itself. “If you were selling all of this as is, there’d be a line of bidders around the block to actually buy all the content, all the bundling of Hulu,” Roberts claimed.
In a statement, a Comcast spokesperson said, “We look forward to the appraisal process and the determination of Hulu’s fair market value, which we expect will reflect the extraordinary value of the business.”
Hulu’s equity fair value is being assessed as of Sept. 30, 2023, by bankers enlisted by each side in accordance with the parties’ agreed appraisal process. (Comcast has tapped Morgan Stanley, and Disney hired JPMorgan Chase, per a CNBC report.) If the numbers calculated by Disney and Comcast’s bankers are not within 10% of each other, the two banking firms will pick a third firm to make another estimate, and Hulu’s final valuation will be the average of the two figures that are closest to each other.
"If the equity fair value is finally determined to be greater than the guaranteed floor value, Disney will pay NBCU an amount equal to NBCU’s equity ownership percentage of the equity fair value net of the guaranteed purchase price within 45 days of such final determination," Disney said in a filing with the SEC. "While the timing of the appraisal process is uncertain, we anticipate it should be completed during the 2024 calendar year."
In addition, according to Disney, under the terms of the transaction, the company will share with NBCU 50% of Disney’s estimated U.S. tax savings resulting from the acquisition of the Hulu stake, with payments expected to be made primarily over a 15-year period.
The long-held theory on Wall Street is that Disney has not expanded Hulu outside the U.S. so as not to increase its value — and thus keep a lid on what it would have to shell out to Comcast. Once it owns Hulu outright, Disney will be poised to launch it as a general-entertainment service worldwide.
Many Wall Street analysts are skeptical that Hulu is worth dramatically more than $27.5 billion minimum value the companies set in 2019, especially now that the gold-rush, grow-at-any-cost streaming era is over and replaced by a focus on profitability.
And Hulu's growth has cooled off. Subscriber growth in the second quarter of 2023 was 4.5%, a slowdown from 8% a year earlier, and Hulu gained just 100,000 total subscribers for the quarter ended July 1 to reach 48.3 million total (44 million on subscription-only tiers, and 4.3 million on live TV with SVOD plans). Disney is set to report earnings for the September 2023 quarter on Nov. 8.
Why is Hulu a long-term strategic asset worth retaining for Disney? The service will help the company's streaming bundles with Disney+ and Hulu reduce churn and boost pricing power, according to Morgan Stanley analyst Benjamin Swinburne. That's “key to scaling streaming revenues against a largely fixed cost base,” he wrote in a recent research note.
On Disney's earnings call in May, CEO Bob Iger announced Disney+’s plans to combine Hulu content into a “unified streaming experience” — which was the first Comcast execs heard about it.
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