Disney (New York Stock Exchange: DIS) Moves to resolve the years-long divided ownership of streaming service Hulu – and to begin what has been a slow retreat of its legacy linear TV business – could set up an asset swap of sorts for the media giant, suggests Citi.
Disney (DIS) and its Hulu co-owner Comcast (NASDAQ:CMCSA) are heading toward an early 2024 deadline to resolve ownership of the streamer, through a unique option setup that allows Comcast to sell its one-third stake to Disney, which owns the other two-thirds.
That requires what will be a sizable payment from Disney. On the other hand, however, Disney has been exploring the possibility of selling its ABC television network next year, as well as considering selling a majority stake in its Indian operations (to Reliance Industries).
The combined purchases and sales could see Disney more or less swapping ABC and India for Hulu, said Citi’s Jason Bazinet. Hulu’s resolution is at stake, and amid disputes over its valuation, the amount Disney pays to acquire it will ultimately depend on third parties, he suggested.
“Our bull case implies that Disney would make a payment of ~$9.1 billion, while our bear case implies a payment of ~$19 billion,” he said.
Meanwhile, control of Disney’s India operations could cost about $10 billion, and assuming Disney takes 30%, it could add $7 billion in cash or stock with “modest changes” to earnings before interest, taxes, depreciation and amortization.
And Citi estimates that ABC and television stations generate about $5.6 billion in revenue and $920 million in adjusted EBITDA. Given a multiple of 7 times the company’s value to EBITDA, Bazinet estimates that ABC’s assets would cost around $6.5 billion.
“In most scenarios, the potential proceeds from the sale of the India and ABC assets will likely offset the Hulu payment,” Bazinet said. “However, if third parties place too high a value on Hulu, Disney may need to use some of its existing cash to acquire Hulu.”
And while most of their scenarios don’t affect Disney’s stock value, a high price for Hulu (excluding synergies) could put “modest pressure on Disney stock.”