Comcast Could Force Disney to Buy Out Shares After Evaluation by Investment Banks
A five-year plan to consolidate ownership of Hulu is inching forward, with both Comcast and Disney hiring investment banks to put a price tag on the streaming service Hulu.
The resulting estimates will be used as a basis for a deal in which, according to the terms of a 2019 agreement, Disney could be forced to buy the one-third share of Hulu that is still held by Comcast.
The sale price is unknown right now, but according to the terms of the deal, it will be based on an overall valuation of at least $27.5 billion — and potentially a lot more, according to a report by CNBC — another company owned by Comcast.
Comcast CEO Brian Roberts has high hopes that the appraisals will show that Hulu is worth far more now than it was when the minimum valuation was set nearly five years ago.
“The company is way more valuable today than it was [in 2019],” he said, according to CNBC.
Hulu is rated fifth in U.S. News‘ rating of best on-demand streaming services of 2023.
“Originally, Hulu billed itself as a cord-cutting rival to Netflix,” U.S. News reported. “Today, Hulu offers plans with on-demand streaming and live TV, the latter of which allows viewers to tune in to live channels that were once only available through cable subscriptions.”
Roberts called Hulu a “kingmaker’s asset” at a September meeting, and threw out an estimated value of around $60 billion, Financial Times reported.
Disney will be hoping for something much closer to the original $27.5 billion minimum valuation of the 2019 contract, according to the financial news outlet. It will pay one-third of the value that is ultimately agreed upon to buy Comcast’s 33 percent share.
It quoted analyst Jason Bazinet as saying, “Hulu’s valuation is apt to make someone disappointed: either Disney will pay more than investors want, or Comcast will receive less than investors expect.”
The unusual situation came about when Disney, in a $71 billion deal, acquired Fox’s 33 percent share of Hulu, along with most of Fox’s other assets, CNBC explained.
Disney already owned one-third of Hulu, so the deal gave the company majority control over the streaming service.
Comcast $CMCSA and Disney $DIS have hired investment banks to value Hulu
Comcast which owns one-third of Hulu hired Morgan Stanley $MS and Disney which owns the other two-thirds hired JPMorgan $JPM – CNBC pic.twitter.com/2IDvFU4av9
— Evan (@StockMKTNewz) October 12, 2023
Comcast held the remaining third, but opted not to sell at the time because it expected Hulu to explode in value. Hence, the “option strike” deal was forged.
The original plan was to set the valuation of the company as of January 2024, but they recently moved the date up to Sept. 30.
And Nov. 1 will be the date when, according to the deal, either Disney can trigger the option to buy Comcast’s one-third share or Comcast can force Disney to buy it.
“The stakes are high for Disney, which would need to raise money to buy out Comcast’s stake through a debt offering if the valuation goes above $29.5 [billion], according to Citi estimates,” the Financial Times reported.
The Times went on to say investors “have shown some concern about Disney’s cash flow.”
“Last week, the company said it would double its spending on its theme parks to $60 [billion] over the next decade. The shares dropped after the announcement because of investor concerns about potential pressure on its free cash flow until those investments start to pay off.”
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