How Banks Will Set Hulu’s Value if Disney and Comcast Can’t Agree

As the deadline for Disney and Comcast’s agreement for a sale of Hulu inches closer, the two parties are working to determine the streaming service’s fair-market value. But what happens if they can’t agree? A new filing spells that out.

“In the event the parties do not come to agreement regarding equity fair value, each party appoints an investment banking firm to determine the value,” Disney wrote in an SEC filing Friday. “If the two determinations are not within 10% of each other, then the two investment banking firms select a third firm to make a third determination, in which case the equity fair value shall be the average of the two determinations that are closest in value to each other.”

Disney and Comcast revised what’s known as a put/call agreement about Comcast’s minority share in Hulu on Sept. 6, moving forward a deadline in which Comcast can force Disney to buy the stake or Disney can compel Comcast to sell it to November.

According to the filing, the appraisers will base the valuations on “Hulu’s historical financial and operating results, which shall be based solely on audited financial statements; that Hulu is valued as a going concern, carrying on its existing business activities; and Hulu’s future business prospects and projected financial and operating results, assuming that the assets, contract rights and intellectual property used in Hulu’s business that are provided by Disney will be continued and available to Hulu in a manner and on terms consistent with past practice.”

Those clauses appear to address concerns about how to value Hulu without the accompanying rights to Disney-produced shows.

Under the terms of the initial agreement struck in 2019, the deadline for a put or call was January 2024.

That agreement guaranteed a minimum total equity value of $27.5 billion for Hulu, suggesting that Comcast’s share would be worth at least $9 billion. As of Oct. 1, 2022, Disney valued Comcast’s stake at $8.7 billion, according to its latest annual report.

There are many variables at play in that valuation. Among others, Comcast may have diminished its stake by failing to meet capital calls to fund Hulu’s operations.

During an investor conference hosted by Goldman Sachs on Wednesday, Comcast CEO Brian Roberts said that the $27.5 billion figure was “just a hypothetical that we picked five years ago because Disney had control of the company.” He estimated that all the synergies around the “scarce kingmaker asset” could be worth $30 billion before even ascribing value to Hulu itself.

Once the sale is completed, Roberts said Comcast plans to return some of the proceeds to shareholders this year, and is also planning to boost spending.

“We’ve increased the run rate by several billion dollars for the remaining two quarters of the year, which really is a reflection of our confidence in the anticipated outcome and of the valuation process and the strength of our underlying business that we’ve been talking about,” Roberts said.

Disney plans to combine Hulu and Disney+ into one combined app by the end of the year, another signal of its confidence in the outcome of the sale process.

“Comcast does not get in the way of us doing that and the combination of those apps is designed to obviously help the business become profitable,” Disney CEO Bob Iger told CNBC in July. “Hulu is a diversified business in terms of its content offering, it’s done extremely well on the advertising front, it will help in terms of viewer engagement and advertising, meaning… it’s the right thing for us to do as we prioritize turning that business, not just into a profitable business, but a growth business, which I’m confident we can do.”

In its third quarter of 2023, Disney’s direct-to-consumer division saw revenue increase 9% year over year to $5.5 billion and its operating loss narrow to $512 million from $1.1 billion a year ago. Hulu reported a total of 48.3 million subscribers, including 44 million SVOD-only subscribers and 4.3 million Live TV and SVOD subscribers.

Shares of Disney, which are down 8.3% year to date and 29% in the past year, closed at $81.58 Friday.

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