Earlier this month, Comcast CEO Brian Roberts revealed that they had made an agreement with Disney to bring forward the date at which the two companies can force one another to make Disney buy out Comcast’s stake in Hulu.

Originally, the contract signed back in 2019, when Disney purchased 20th Century Fox, stated that the put/call agreement would begin at the start of 2024, but in a recent SEC filing, Disney has outlined details of how the upcoming sale of Comcast’s stake in Hulu is going to work out potentially:

In May 2019, subsidiaries of The Walt Disney Company (collectively with its subsidiaries, “Disney”), a subsidiary of NBC Universal (collectively with its subsidiaries, “NBCU”) and Hulu, LLC (“Hulu”), which is owned 67% by Disney and 33% by NBCU, subject to dilution under certain circumstances, entered into an amended agreement. As announced on September 6, 2023 by the Chairman and Chief Executive Officer of NBCU’s parent company, Comcast Corporation, the provisions of the agreement related to the put/call arrangement have been amended. Under the agreement, as amended, in November 2023 (in addition to subsequent periods), NBCU has the option to require Disney to purchase, and Disney has the option to require NBCU to sell, NBCU’s interest in Hulu to Disney, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s equity fair value or a guaranteed floor value of $27.5 billion. If the put/call is exercised in November 2023, Hulu’s equity fair value will be assessed as of September 30, 2023.

In the event the parties do not come to agreement regarding equity fair value, each party appoints an investment banking firm to determine the value. If the two determinations are not within ten percent (10%) of each other, then the two investment banking firms select a third firm to make a third determination, in which case the equity fair value shall be the average of the two determinations that are closest in value to each other.

The appraisers shall take into account factors they determine relevant to valuation and certain specific factors, including, among others, Hulu’s historical financial and operating results, which shall be based solely on audited financial statements; that Hulu is valued as a going concern, carrying on its existing business activities; and Hulu’s future business prospects and projected financial and operating results, assuming that the assets, contract rights and intellectual property used in Hulu’s business that are provided by Disney will be continued and available to Hulu in a manner and on terms consistent with past practice.

Comcast and Disney have been in negotiations for a while over Hulu, but this SEC filing outlines how it will go down legally.   Part of the contract does state that Comcast will have the option but not the obligation to fund its proportionate share of Hulu’s future capital calls and will be diluted if it elects not to fund. Disney has agreed that only $1.5 billion of any year’s capital calls can be funded through further equity investments, with any capital in excess of that annual amount being funded by non-diluting debt. Whether Comcast funds its share of those equity capital calls or not, Disney has agreed that Comcast’s ownership interest in Hulu will never be less than 21% such that Comcast is guaranteed to receive at least $5.8 billion under the put/call agreement.

Comcast has already stopped providing financial backing to Hulu, resulting in Disney stepping in to fill that void.  So, it’s unknown how much this may reduce their overall stake in Hulu.

Later this year, Disney is planning on making Hulu content available within Disney+ as part of its one-app experience, to eventually merge the two platforms together, to bring the US version of Disney+ more in line with the international version, which offers general entertainment content from its studios like ABC, FX and 20th Century Studios.    The eventual merger between Hulu and Disney+ is expected to give Disney a single streaming service to focus all of its efforts on, saving money on creating content, marketing, staffing, development, technology and much more.  It would provide Disney+ with more general entertainment content like current hits like “The Bear”, “Only Murders In The Building”, and “Futurama”, in addition to bringing in more advertising revenue from Hulu subscribers.

Disney hasn’t outlined its plans for how the merger of Hulu and Disney+ will happen yet, since it still needs to resolve Comcast’s stake in the platform.   When the completion of Disney’s acquisition of Comcast’s stake happens, it is unknown, but it does look like it’s going to be sorted sooner rather than later.

Roger Palmer

Roger has been a Disney fan since he was a kid and this interest has grown over the years. He has visited Disney Parks around the globe and has a vast collection of Disney movies and collectibles. He is the owner of What's On Disney Plus & DisKingdom. Email: Roger@WhatsOnDisneyPlus.com Twitter: Twitter.com/RogPalmerUK Facebook: Facebook.com/rogpalmeruk

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