Comcast and Disney have pulled forward the timeline for when the two companies can move forward with a process to sell Comcast’s one-third stake in Hulu to Disney. The original January date has been bumped up to the end of September, according to Comcast CEO Brian Roberts, who also indicated he thinks the streaming asset will fetch a price far higher than originally theorized.
Roberts shared the new date Wednesday when asked by analysts during the Goldman Sachs Communacopia & Technology Conference about whether Comcast intends to exercise its option to sell its existing stake in Hulu, and if so how proceeds would be reallocated. Disney currently holds a 67% stake in Hulu.
“We and Disney last week signed a modification to our agreement to bring forward that date that that question begins to get answered to September 30,” Roberts said. “So as of September 30, after some short period of time, Disney can call, we can put, and I believe that’s what will end up happening.”
Roberts also took time to lay out how the valuation and appraisal process will work, noting specific language in the agreement and the fact that a pure play streaming service with success such as Hulu has never been on the market before.
To be clear, Hulu is not going on the market, but Comcast has the option to sell its stake to Disney. In determining the value however, he noted contract language is very clear while also having an unusual clause, saying it assumes for the appraiser as if Hulu were to be sold “as is” – and what that value is to maximize equity value. And to appraise it the process needs to value based on what could be achieved through a hypothetical auction or sales process and what Comcast, Disney or any other company, such as tech players, would pay for it.
Roberts he said in his opinion the sale is for more than just Hulu “a lot more than Hulu,” which starts at a standalone value with it’s No. 2 position among leading AVOD/SVODs in the U.S., only behind Netflix, and then bake in other benefits like bundling, which also has impacts on churn, and synergies.
And Roberts sees Hulu as a key asset that would be highly sought after if it was up for sale, noting the number one streaming company has a $200 billion valuation in the market today, and in terms of engagement believes “Netflix and Hulu are in a class by themselves.”
“No one’s ever sold a pure play, or auctioned off a pure play streaming asset that’s in this kind of position. That’s a scarce, kingmaker asset, whoever would get that,” he said.
Hulu as of the end of the second quarter had around 44 million subscribers, while its virtual MVPD Hulu + Live TV had 4.3 million.
“But the key and why that is so more than Hulu is you get all the content, and you get all the bundling, and you have your own synergy as a buyer,” Roberts continued.
On the content side he noted that while content comes from many sources for Hulu, much is made by Disney-owned entities and in a hypothetical sale there is no end date that changes that.
As for bundling, Roberts noted Disney’s been successfully able to package Hulu with Disney+ and ESPN+, and to be able to stay in that bundle “reduces churn like half for Disney and others, so that value goes go with it.”
The chief executive then cited seeing analyst reports of, depending on who the buyer was, if was to scale assets up, could have a couple of billions of dollars of synergy.
Just “that piece of the synergy and the churn benefit could be worth $30 billion dollars, and that’s before you ascribe any value to the actual Hulu.”
He also pointed to hypothetical robust auctions as further driving up the price.
“I think if you were selling all of this, as is, there’d be a line of bidders around the block to actually buy all the content, all the bundling of Hulu, you know that business we’ve never seen.”
Roberts went on to say that Comcast is excited to get it resolved while also suggesting Comcast could get a much larger payday than a tentative value that was originally hypothesized when the agreement was first in place.
“You know, the minimum number of $27.5 [billion] that people have bandied about, that was just a hypothetical that we picked five years ago because Disney had control of the company. The company is way more valuable today than it was then.”
As far the process goes, he noted, Comcast has an appraiser, Disney has an appraiser, and when they’re so far apart on value a third party comes in.
“So it will take a little time for this to play out. But both companies wanted to get it behind us, so we pulled the date forward…therefore it’s September 30.”
Within 30 days of that, the first put call can get triggered he noted, while also saying its important for investors to get clarity on what the deal will mean for them.
For Comcast he said the plan is to return it to shareholders, and net of bond financing and taxes is going to accomplish part of that in 2023.
“We’ve increased the run rate by several billion dollars for the remaining two quarters of the year, which is really a reflection of our confidence in the anticipated outcome and of the valuation process and the strength of our underlying business,” he commented.