Disney & NBCUniversal Clash Over Hulu Valuation, $5 Billion at Stake

Disney and NBCUniversal are currently at odds over how much Disney should pay NBCUniversal for acquiring the remaining stake in Hulu. The disagreement centers on the financial value of Hulu and how it should be calculated. Initially, Disney paid NBCUniversal a floor price of $8.6 billion. However, both companies have had their respective financial experts assess whether more money is owed, leading to vastly different figures. Disney believes it owes nothing additional, while NBCUniversal claims it is due an extra $5 billion.

As stipulated in their initial agreement, the matter has been submitted to a third-party arbitrator for a definitive resolution. According to a recent SEC filing connected with Disney’s quarterly earnings report, Disney indicated that the result of the arbitration remains unpredictable, and the company may owe between zero and $5 billion, depending on the arbitrator’s decision. This ruling is expected during Disney’s fiscal year 2025, which starts in October.

The origins of this issue date back to November 2023 when NBCUniversal exercised its right to compel Disney to buy its 33% share in Hulu at a value calculated based on NBCU’s ownership percentage of either Hulu’s fair equity value or a guaranteed floor value of $27.5 billion. Subsequently, in December 2023, Disney paid NBCU $8.6 billion. This amount reflected the guaranteed floor value minus NBCU’s unpaid capital contributions. Disney might owe NBCU more if Hulu’s equity fair value, determined by a contractual appraisal process, exceeds the guaranteed floor value.

In May 2024, Disney and NBCU initiated a confidential arbitration to resolve their dispute over the appraisal process, seeking declaratory relief, equitable relief, and unspecified damages. Disney has expressed uncertainty about the arbitration’s outcome and the subsequent impact on Hulu’s equity fair value. The final amount Disney may need to pay NBCU to fully acquire its stake in Hulu will depend on this arbitration’s resolution.

During the appraisal process, Disney’s appraiser valued Hulu below the guaranteed floor value, while NBCU’s appraiser valued it significantly higher. The final equity fair value will be determined by a third appraiser as decided by the arbitration. If this third appraiser’s valuation matches or is less than the guaranteed floor value, Disney won’t owe NBCU any additional money. However, if NBCU’s appraisal is validated and the third appraiser’s valuation is consistent with it, Disney could owe an additional $5 billion. Alternatively, if the third appraiser’s valuation falls between the two initial appraisals, Disney would owe a proportional amount between zero and $5 billion.

This dispute’s resolution remains an essential point as it will significantly impact Disney’s financial dealings and strategy regarding Hulu. The arbitration outcome will ultimately determine the financial adjustments Disney must make to settle this acquisition, influencing their future operations and potential payments to NBCU.

Information about this ongoing arbitration has added layers of complexity to Disney’s financial outlook, reflecting the broader challenges and strategic maneuvers within the streaming and entertainment sectors. With the third-party arbitration process underway, industry observers await the final decision, which will have substantial implications for both Disney and NBCUniversal.

Source: Particle News