Disney & Comcast Hire Investment Banks to Value Hulu
Comcast and Disney have enlisted the services of investment banks to assess the value of Hulu, marking a significant milestone in a nearly five-year endeavor to consolidate ownership of the streaming platform.
According to CNBC, Comcast, which holds a one-third stake in Hulu, has retained Morgan Stanley, while Disney, the owner of the remaining two-thirds, has engaged JPMorgan Chase. The purpose of this engagement is to determine a fair valuation for Hulu, as stipulated in a 2019 agreement that grants either Disney or Comcast the option to compel Disney to purchase Comcast’s 33% share.
Approximately five years ago, Comcast and Disney entered into an unusual arrangement following Disney’s acquisition of the majority of Fox’s assets in a $71 billion transaction, which included Fox’s minority stake in Hulu. This transaction effectively bestowed Disney with majority control over Hulu due to Disney’s existing one-third ownership.
Comcast opted not to immediately sell its Hulu stake to Disney because it anticipated an increase in the value of streaming video between 2019 and 2024. However, Comcast recognized that it would no longer have operational control over the company’s future. Consequently, Disney and Comcast negotiated an agreement that allowed Comcast to participate in Hulu’s presumed growth while establishing a timeline for Disney to eventually gain complete ownership and integrate Hulu into its long-term streaming strategy.
Initially, the companies set a January 2024 deadline for the option to take effect. However, last month, they jointly agreed to advance the valuation deadline to September 30. This date serves as the final assessment point for Hulu’s value by both Morgan Stanley and JPMorgan Chase.
On November 1, Comcast can exercise its right to compel Disney to purchase its 33% stake in Hulu, and Disney can also invoke its option to acquire this stake from Comcast. Comcast CEO Brian Roberts mentioned this as a likely scenario at the Goldman Sachs’ Communacopia conference last month.
Roberts stated, “We are eager to bring this matter to a resolution. The company’s value has substantially increased since 2019, and we are looking forward to seeing how this process unfolds.”
Once the option is triggered, Morgan Stanley and JPMorgan will initiate their respective evaluations of Hulu’s worth. If the final valuations provided by the two banks are within 10% of each other, the average of their determinations will serve as the valuation for Hulu. Disney will then pay Comcast 33% of that value. The 2019 agreement established a minimum valuation floor for Hulu at $27.5 billion.
If the evaluations provided by the two banks do not fall within a 10% margin of each other, Disney and Comcast would mutually decide to enlist the services of a third investment bank to conduct an additional valuation. To determine the selling price, this third valuation would then be averaged with the prior assessment that is closest to it.
The process of assessing Hulu’s value is complex. With 48.3 million subscribers, there has never been a sale of a pure-play streaming service at this scale before. During the Goldman conference, Roberts emphasized that a fair valuation should also consider the synergy value. Disney’s ownership of Hulu contributes to the bolstering of Disney+ and ESPN+ subscribers because Disney bundles all three streaming services together.
There is no fixed timetable for the duration of the valuation process or when a final agreement will be reached. However, Roberts acknowledged that both Disney and Comcast are keen on reaching a resolution sooner rather than later, which is why they mutually decided to advance the option strike date by several months.
Roberts mentioned at the conference that Comcast intends to distribute the proceeds from a potential sale to its shareholders.