Disney CEO Bob Iger and Comcast’s Brian Roberts
Comcast And Disney have hired investment banks to value Hulu, the next step in a nearly five-year process to bring the streaming service under single ownership.
Comcast, which owns a third of Hulu, hired Morgan Stanleyand Disney, which owns the remaining two-thirds, hired JPMorgan Chase. Each bank is responsible for providing fair value to Hulu — a condition of a 2019 deal that allows Disney or Comcast to trigger an option requiring Disney to buy back Comcast’s 33% stake.
Spokespeople for Comcast, Disney, Morgan Stanley and JPMorgan declined to comment.
Nearly five years ago, Comcast and Disney struck an unusual deal after Disney acquired the majority of Fox’s assets in a $71 billion deal, including Fox’s minority stake in Hulu. This deal gave Disney majority control over Hulu, as Disney already owned a third of the streaming service.
Comcast did not want to sell its stake in Hulu to Disney immediately because it believed the value of video streaming would increase between 2019 and 2024. Yet Comcast executives also understood that the company would no longer have control operational on the future of the company. . As a result, Disney and Comcast reached an agreement where Comcast could participate in the company’s supposed appreciation while setting a time when Disney could eventually unify the property and integrate Hulu into its long-term streaming strategy.
Initially, the companies set an option exercise date of January 2024. Last month, the two companies agreed to advance the deadline for Hulu to be valued from January 2024 to September 30. This deadline represents the final date on which Hulu’s valuation will be assessed by Morgan Stanley and JPMorgan Chase.
On November 1, Comcast can force Disney to acquire its 33% stake in Hulu and/or Disney can trigger its option to acquire Comcast’s stake. That should happen, Comcast CEO Brian Roberts said at Goldman Sachs’ Communacopia conference last month.
“We’re excited to resolve this issue,” Roberts said at the conference. “The company is much more valuable today than it was (in 2019). And we look forward to seeing how this process (plays out).”
Once the option is triggered, Morgan Stanley and JPMorgan will begin their assessments of Hulu’s value. If the final valuations of the two banks are within 10% of each other, the average of the two banks’ determinations will be the price at which Hulu is valued. Disney would then pay Comcast 33% of that value for its stake. The 2019 deal set a floor valuation for Hulu at $27.5 billion.
Rafael Henrique | SOPA Images | LightRocket | Getty Images
If the two banks’ valuations are not within a 10% range, then Disney and Comcast would agree to hire a third investment bank to draw another valuation conclusion. To set the sale price, this third assessment would then be calculated on average with the previous assessment which is closest to it.
The process of calculating valuation is not simple. Hulu has 48.3 million subscribers. A pure-play streaming service on this scale has never been sold before. Roberts argued at the Goldman conference that a fair valuation should also include synergy value. Disney’s ownership of Hulu helps support Disney+ and ESPN+ subscribers as Disney bundles the three streaming services.
There is no timetable for how long the evaluation process will take or when the deal will be finalized, but Roberts acknowledged that Disney and Comcast both want a resolution as soon as possible, it is why they agreed to bring forward the date of exercise of the option by several months.
“It’s going to take a little while for that to come to fruition,” Roberts said. “But both companies wanted this to be behind us. So we moved the date forward.”
Roberts said at the conference that Comcast plans to return the sale proceeds to shareholders.
Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.
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