Disney and NBCUniversal are locked in a dispute over how much the former should pay the latter to absorb the rest of Hulu.
Disney Itotomy Itosto andmytoto paid Comcast’s NBCU a previously agreed minimum price of $8.6 billion and both sides had their own bankers calculating how much more, if anything, was owed.
Not surprisingly, their numbers differed. Disney’s camp thought there was no problem, NBCU’s camp thought another $5 billion was owed. As provided for in the initial contract, the dispute was turned over to a third party, a confidential arbitrator, for a final decision. In a filing with the SEC today in conjunction with NBCU, the two sides agreed to a final decision. its quarterly earningswhere streaming turned a profit for the first time. Disney said it can’t predict the outcome of the Hulu fight, but that it will have to pay a sum between zero and $5 billion.
The decision is expected to be made during its 2025 fiscal year, which begins in October.
“In November 2023, NBCUniversal exercised its right to require Disney to purchase its 33% stake in Hulu at a redemption value based on NBCU’s equity ownership percentage of the greater of the fair value of Hulu’s equity or a guaranteed minimum value of $27.5 billion,” the filing says, going over the background.
In December 2023, Disney “paid NBCU $8.6 billion, reflecting the guaranteed minimum value less NBCU’s outstanding equity contributions. If Hulu’s equity fair value is determined pursuant to a contractual appraisal process to be higher than the guaranteed minimum value, the company must pay NBCU its share of the difference between the equity fair value and the guaranteed minimum value.”
In May 2024, the Company and NBCU entered into confidential arbitration to resolve a dispute relating to the contractual evaluation process, with the parties seeking declaratory relief, equitable relief, and unspecified damages. Disney expects a decision in that arbitration in fiscal year 2025.
“The outcome of the arbitration is uncertain and we cannot reasonably estimate the impact of the arbitration on the valuation process and, therefore, any impact on the determination of the fair value of Hulu’s equity and any additional amounts we may be required to pay to acquire NBCU’s interest in Hulu.”
As part of the arbitration, the Company challenges the validity of certain aspects of NBCU’s appraisal and the related process. Accordingly, the finalization of the appraisal process, including how to determine any additional amounts to be paid by the Company, is pending resolution of the confidential arbitration.
He said that “during the initial phase of the appraisal process, Disney’s appraiser arrived at a valuation that was lower than the guaranteed minimum value, while NBCU’s appraiser arrived at a valuation that was substantially higher than the guaranteed minimum value.
“Once arbitration is complete, the final fair value determination will take into account a third appraiser’s appraisal pursuant to the appraisal process resolved in arbitration. Therefore, if the third appraiser’s fair value determination were at or below the guaranteed minimum value, Disney would not be obligated to pay NBCU any additional amounts.”
Conversely, if NBCU’s appraisal were found to be valid and the third-party appraiser’s determination of the fair value of the common stock were consistent with NBCU’s appraiser’s valuation, the Company would be obligated to pay NBCU an additional amount of approximately $5 billion as its share of the difference between the fair value of the common stock and the guaranteed minimum value.
“If the third-party appraiser’s determination of the fair value of the equity was between the appraisals of the Company’s and NBCU’s appraisers, the incremental amount would also be between zero and approximately $5 billion.”
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