Disney and NBC Go Head-to-Head Over Hulu Valuation
It’s time to finalize the sale of NBCUniversal’s one-third share in the surprisingly profitable Hulu streaming service over to the majority stakeholder, Disney. As industry experts predicted back when the deal was first agreed to late last year, there’s a need for an upward shift in the purchase price thanks to Hulu’s surprising recent successes. Safe to say, Disney isn’t happy about it. Today, Brandon Blake, take a look at our best entertainment lawyers in Los Angeles in the know from Blake & Wang P.A., takes a closer look at this brewing storm.
Revised Price, New Problems
Towards the end of 2023, NBCU and Disney agreed on a floor price of $8.6B for Hulu. The initial deal required Disney to buy out NBCU at either the greater of $27.5B (for the whole company) or Hulu’s equity fair value. Since then, bankers from both companies have been fervently calculating what, if anything, else would be due to meet the fair purchase price requirement. Hulu was under a put option for Comcast’s stake, meaning that the company could force Disney to take over its one-third stake. While Hulu has been a strong enough performer that Disney would likely have found another buyer, they now seem fully committed to incorporating Hulu into the full Disney streaming stable.
The only remaining question is, at what price?
The Price Disagreement
Disney’s legal and accounting teams have, unsurprisingly, determined it was in the clear with the initial $8.6B floor price. As can be expected, Disney has decided that Hulu is worth less than its guaranteed floor value. Equally as unsurprisingly, the NBCU camp disagrees. Strongly. $5B strongly, in fact.
Since it was always obvious that such a situation could arise, it was provided for in the initial contract, and a confidential arbitrator will take responsibility for the final decision. According to a recent SEC filing, revealed alongside Disney’s recent quarterly earnings, the final decision will be announced during Disney’s fiscal 2025 year, which will begin in October 2024.
The $8.6B, which has already changed hands, was based on the guaranteed floor value established in the initial contract without NBCU’s unpaid capital call contributions. The current debate aims to establish if Hulu’s equity fair value is, in fact, higher than that guaranteed floor value. A core part of the arbitration currently entered into revolves around disputes on the validity of some of NBCU’s appraisals of the service’s potential.
Now, whatever the independent arbitrator decides will stand. The key question will be whether they agree with NBCU that Hulu is currently valued over the stated floor value or side with Disney on its value. This will determine the final amount that Disney must eventually hand over to Comcast for full control of Hulu. Naturally, the arbitrator could also arrive at any valuation figure other than NBCU’s stated $5B as well.
For now, all that we can state certainly is that Disney will owe Comcast somewhere between $0 and $5B for the little streaming platform that could.
