Comcast and Disney have taken the next step in the process of determining the value of Hulu, the popular streaming service. Both companies have hired investment banks to provide a fair valuation for the platform. Comcast has enlisted the services of Morgan Stanley, while Disney has hired JPMorgan Chase.
This move is part of an agreement established in 2019, which allows either Disney or Comcast to trigger an option requiring Disney to buy Comcast’s 33% stake in Hulu. As per the agreement, both companies must agree on a fair value for the service.
The decision to hire investment banks comes almost five years after Comcast and Disney created an agreement following Disney’s acquisition of the majority of Fox’s assets, which included Fox’s minority stake in Hulu. This gave Disney majority control over Hulu, as they already owned one-third of the platform.
Comcast initially chose not to sell its stake to Disney, believing that the value of streaming video would increase between 2019 and 2024. However, Comcast also understood that they would no longer have operational control over Hulu’s future. Therefore, both companies agreed to allow Comcast to participate in the future appreciation of Hulu while setting a deadline for Disney to eventually integrate the platform into its long-term streaming strategy.
The original deadline for the option was set for January 2024 but was recently moved up to September 30. On November 1, Comcast can force Disney to acquire its stake, and Disney can trigger its option to acquire the stake from Comcast. The CEO of Comcast, Brian Roberts, confirmed that this is expected to happen.
Once the option is triggered, Morgan Stanley and JPMorgan will assess the value of Hulu. If their valuations are within 10% of each other, the average of the two determinations will be the final price at which Hulu is valued. Disney will then pay Comcast 33% of that value for its stake. The 2019 deal established a floor valuation for Hulu at $27.5 billion.
If the banks’ assessments do not fall within the 10% range, both companies will agree to hire a third investment bank to conduct another valuation. The sale price will then be determined by averaging the third valuation with the previous assessment that is the closest to it.
The valuation process is expected to take some time, and there is no set timetable for when a deal will be reached. However, both Disney and Comcast are eager to resolve the matter promptly, which is why they agreed to move the option strike date forward.
During the valuation process, the fact that Hulu has 48.3 million subscribers will be taken into account. Roberts argued that a fair appraisal should also consider the synergy value, as Disney’s ownership of Hulu helps boost its other streaming services, Disney+ and ESPN+, through bundled subscriptions.
Roberts stated that proceeds from a potential sale will be returned to Comcast shareholders. There is no doubt that both companies want to reach a resolution as soon as possible.
Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.