No Surprise, Disney & NBCUniversal Disagree On Hulu Valuation With $5 Billion In The Balance

Disney and NBCUniversal are locked in a dispute about how much the former must pay the latter for absorbing the rest of Hulu.

Disney has already paid Comcast’s NBCU a previously agreed upon floor price of $8.6 billion and both sides had their own bankers calculating how much more, if any, was owed.

Not surprisingly, their numbers diverged. Disney’s camp figured it was in the clear, NBCU’s that another $5 billion was due. As provided for in the initial contract, the dispute was handed to a confidential arbitrator for a final decision. In an SEC filing today in conjunction with its quarterly earnings, Disney said it cannot predict the outcome but it will owe somewhere between zero dollars and $5 billion.

It expects the decision during its fiscal 2025, which starts in October.

“In November 2023, NBCUniversal exercised its right to require Disney to purchase its 33% interest in Hulu 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.

In December 2023, the Company paid NBCU $8.6 billion, which reflected the guaranteed floor value less NBCU’s unpaid capital call contributions. If Hulu’s equity fair value is determined pursuant to a contractual appraisal process to be higher than the guaranteed floor value, the Company is required to pay NBCU its share of the difference between the equity fair value and the guaranteed floor value.

In May 2024, the Company and NBCU entered into a confidential arbitration to resolve a dispute regarding the contractual appraisal process, in which the parties seek declaratory relief, equitable relief and unspecified damages. Disney expects a decision in that arbitration in fiscal 2025.

“The outcome of the 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.”

As part of the arbitration the company disputes the validity of aspects of NBCU’s appraisal and the corresponding process. Consequently, completion of the appraisal process, including the manner of determining any such additional amount payable by the company, awaits the resolution of the confidential arbitration.

During the initial phase of the appraisal process, Disney’s appraiser arrived at a valuation that falls below the guaranteed floor value, while NBCU’s appraiser arrived at a valuation substantially in excess of the guaranteed floor value.

Once the arbitration is completed, determination of the final equity fair value will take into account the valuation of a third appraiser pursuant to the appraisal process as resolved by the arbitration. As such, if the third appraiser’s equity fair value determination were equal to or below the guaranteed floor value, Disney would not be required to pay NBCU any additional amount.

Conversely, if NBCU’s appraisal were deemed to be valid and the third appraiser’s equity fair value determination were consistent with the NBCU’s appraiser’s valuation, the Company 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.

If the third appraiser’s equity fair value determination were between the valuations of the Company’s and NBCU’s appraisers, the incremental amount would likewise be between zero and approximately $5 billion, Disney said.

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