Disney Faces Potential $5 Billion Additional Cost for Hulu Stake Purchase Amid Valuation Dispute with Comcast

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Walt Disney Co. (DIS.N) disclosed on Wednesday that it may be required to pay up to $5 billion more to acquire Comcast Corp.’s (CMCSA.O) 33% minority stake in Hulu, depending on the outcome of an independent appraisal. This potential additional cost arises if the appraiser supports Comcast’s higher valuation of the stake, which is estimated to be worth more than $40 billion.

Earlier this year, Disney and Comcast enlisted RBC Capital Markets as the independent appraiser to resolve their ongoing dispute regarding the valuation of Hulu. This follows the May announcement by Reuters that both companies were seeking an independent advisor to settle the valuation differences.

The two companies have entered into arbitration proceedings to address this valuation disagreement, with a final resolution anticipated in fiscal 2025. The dispute centers on an agreement from 2019, which was struck following Disney’s $71 billion acquisition of 21st Century Fox’s assets, including its minority stake in Hulu.

Under the 2019 agreement, Disney gained majority control of Hulu by acquiring an additional 33% stake, while Comcast retained its minority stake, expecting the value of its investment to appreciate significantly by January 2024. In November of the previous year, Disney agreed to assume full control of Hulu, committing to pay Comcast at least $8.6 billion for the remaining 33% stake.

Disney clarified on Wednesday that if RBC Capital’s valuation is at or below the guaranteed floor value of $27.5 billion, the company would not be obligated to pay Comcast more than the $8.6 billion already disbursed. However, if RBC’s appraisal aligns with Comcast’s assessment, Disney would need to pay an additional $5 billion. Should the valuation fall between the earlier estimates provided by the companies, Disney could be required to pay anywhere from nothing up to approximately $5 billion.

JPMorgan, Disney’s advisor for this transaction, had valued Hulu at under $27.5 billion, which is the minimum valuation set by the 2019 “put-call” agreement. In contrast, Morgan Stanley, representing Comcast, valued Hulu at $40.8 billion.

In their regulatory filings last year, Disney and Comcast stated that if their respective banks’ valuations differed by more than 10%, an independent appraisal would be necessary. Given the significant discrepancy between the valuations, RBC Capital was selected to conduct this independent assessment.