Variety: Disney Says It Might Have to Pay Comcast up to $5 Billion More to Buy Out Hulu

Story from Variety:

Disney and Comcast remain locked in a dispute over what Hulu is worth — and Disney said it might have to pay up to $5 billion more to complete the buyout of NBCUniversal’s 33% stake in the streamer.

Last year, Disney accelerated negotiations to buy the Comcast/NBCU stake in Hulu to take full ownership of the streaming service. In December 2023, the Mouse House paid $8.61 billion to Comcast, which represented one-third of the $27.5 billion guaranteed floor value for Hulu that was set when the companies entered into their agreement in 2019.

But so far, the two sides have been unable to agree on a fair market value for Hulu.

During the initial phase of the appraisal process, Disney’s third-party appraiser arrived at a valuation that fell below the $27.5 billion guaranteed floor value — while NBCU’s appraiser arrived at a valuation “substantially in excess of the guaranteed floor value,” according to Disney’s 10-Q filed with the SEC Wednesday for its third quarter of fiscal 2024.

In May 2024, Disney and NBCU entered into a “confidential arbitration” to resolve the dispute over the appraisal process to determine the fair value of Hulu “in which the parties seek declaratory relief, equitable relief and unspecified damages,” Disney disclosed. Per the companies’ agreement, if the two sides’ valuations were not within 10% of each other, the banks they enlisted for the transaction would pick a third firm to make another estimate, and Hulu’s final valuation will be the average of the two figures that are closest to each other.

According to the Disney filing, if NBCU’s appraisal were “deemed to be valid” and a third appraiser’s equity fair-value determination “were consistent with the NBCU’s appraiser’s valuation,” Disney would be required to pay NBCU an additional amount of approximately $5 billion as its share of the difference between the equity fair value and the guaranteed floor value. That suggests that Comcast’s third-party appraisal valued Hulu in the neighborhood of $40.8 billion.

If the third appraiser’s equity fair value determination for Hulu were between the valuations of Disney’s and NBCU’s appraisers, the incremental amount Disney would have to pay would be “between zero and approximately $5 billion.”

The outcome of the Hulu deal arbitration “is uncertain and we cannot reasonably estimate the impact of the arbitration on the appraisal process, and thus any impact on the determination of Hulu’s equity fair value and any additional amount we may be required to pay to acquire NBCU’s interest in Hulu,” Disney noted in the filing.

The two sides have been far apart on the question of Hulu’s market value for months. Comcast CEO Brian Roberts touted Hulu as “a scarce, kingmaker asset” last September, and suggested the “synergies” Hulu would afford a full owner would be worth $30 billion, even before accounting for the value of Hulu itself.

Under the previously set terms of the transaction, the Disney is set to share with NBCU 50% of Disney’s estimated U.S. tax savings resulting from the amortization of the purchase of NBCU’s interest in Hulu, with payments expected to be made primarily over a 15-year period.

Disney had already taken full operational control of Hulu and been acting as the sole owner for some time now, using it as the main streaming home for current ABC series, including hit comedy “Abbott Elementary,” and FX programming like “The Bear,” and integrating it into the company’s flagship Disney+ service.