The True Value of Hulu: The Comcast-Disney Deal

In a significant development, Walt Disney (DIS) announced that Comcast (CMSCA) has exercised its right to sell its one-third stake in the popular streaming service, Hulu, to Disney - who already holds the other two-thirds. However, the true worth of this transaction remains unknown as of yet.

Disney has stated that it anticipates paying Comcast a staggering $8.61 billion by December 1st, but the intricate details of this deal make it a complex situation.

Five years ago, both companies signed an agreement granting them the right to initiate a transaction wherein Comcast would sell its minority stake in Hulu to Disney. The agreement specified a floor valuation for Hulu, amounting to $27.5 billion.

Under the terms of the deal, Disney is required to pay Comcast one-third of the floor valuation (with a deduction for capital call contribution to Hulu) within 30 days of executing the put.

However, this is not the conclusion of the matter. Both parties have agreed upon an appraisal process, which aims to assess the equity fair value of Hulu as of September 30th, 2023. Interestingly, if this figure exceeds the floor value previously established, Disney will be obligated to pay its respective share of the difference. The potential magnitude of this difference could result in billions of additional dollars flowing from Disney to Comcast. Disney foresees the appraisal process concluding in 2024.

In conclusion, this transformative deal between Comcast and Disney regarding Hulu's ownership poses significant financial implications that are yet to be fully determined. The true worth of this streaming service is about to be unveiled as the appraisal process progresses in the coming years.

A Complex Process Unfolds for Determining the Value of Hulu

​ Hulu's valuation process is anything but straightforward. In a securities filing made by Comcast in September, it was revealed that both parties involved in the negotiation will enlist the help of bankers to estimate the fair value of Hulu. Should the two estimates fall within 10% of each other, the fair value will be calculated as the average of these figures. However, if the estimates differ by a wider margin—which is likely to be the case—a third banker will be sought out by both sides to independently evaluate the business, and ultimately, the fair value will be determined by averaging the two closest estimates.

Comcast CEO Brian Roberts has consistently argued that Hulu is worth far more than its negotiated floor value. During a presentation at a Goldman Sachs conference in September, Roberts stated that the business is "way more valuable" than the current valuation of $27.5 billion.

Comcast has indicated that it plans to use the funds from the sale of its Hulu stake to expedite its stock repurchase program.

Following the announcement, shares of both Comcast and Disney experienced a slight increase in after-hours trading on Wednesday—0.1% for Comcast and 0.3% for Disney.