How much is the streaming service Hulu worth? We’re about to find out.
Walt Disney
(ticker: DIS) on Wednesday said that
Comcast
(CMSCA) has exercised its right to sell its one-third stake in the streaming service to Disney, which holds the other two thirds.
But this is a complicated situation, and the precise price of the transaction remains to be determined. Disney said it expects to pay Comcast $8.61 billion by Dec. 1.
Under an agreement signed by the two companies five years ago, both sides had the right to trigger a transaction in which Comcast would sell Disney its minority stake in Hulu. The agreement set a floor valuation for Hulu of $27.5 billion.
Terms of the deal call for Disney to pay Comcast one-third of the floor valuation—less a capital call contribution to Hulu—within 30 days of the exercise of the put.
But that isn’t the end of the story. Under an appraisal process agreed to by both sides, Hulu’s equity fair value will be assessed as of Sept. 30, 2023. And as Disney notes, if that figure is determined to be above the floor value, Disney will have to pay its share of the difference, which could mean billions of dollars more flowing from Disney to Comcast. Disney said it expects the process to be completed in 2024.
The process is convoluted. As disclosed by Comcast in a securities filing in September, both sides will hire bankers to estimate Hulu’s fair value. If the two estimates are within 10% of each other, fair value is calculated as the average of the two figures. If those estimates are farther apart—which seems likely—then the bankers from the two sides together pick a third banker to value the business, and then the fair value will be an average of the two estimates that are closest together.
For months now, Comcast CEO Brian Roberts has made the case that Hulu is worth much more than the negotiated floor value. Speaking at a Goldman Sachs conference in September, Roberts said the business is “way more valuable” than $27.5 billion.
Using
Netflix
per-subscriber values as a comparable, Hulu would be worth $40 billion, as Barron’s recently wrote, which would mean about $13 billion for Comcast. Hulu, meanwhile, had $10.7 billion in 2022 revenue, a third of Netflix’s. On a comparable revenue basis, Hulu would be worth $65 billion, putting the value of Comcast’s stake above $20 billion.
Comcast has said it would use proceeds from the sale of its Hulu stake to accelerate its stock repurchase program.
“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,” a Comcast spokesperson said in response to a request for comment on Disney’s press release.
Shares of Comcast and Disney were up 0.1% and 0.5%, respectively, in after-hours trading Wednesday after the announcement.
Write to Eric J. Savitz at [email protected]
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