In its last move to prioritize and generate value for shareholders, the management of Comcast (CMCSA) showed AT & T (T) how to find a deal. In its latest maneuver, the company made a diverse deal with The Walt Disney Company (DIS), so that Comcast will clear itself of its stake in Hulu on time so that it can generate money along the way for its shareholders . Although I am still convinced that the biggest winner here is Disney, since it will end up with full control of Hulu, the transaction has been turned up by Comcast at least more in line with shareholder interests than AT & Ts were, and that creates the opportunity for meaningful upside everything should go well.
A Look At The Transaction
With the launch of ESPN + and the rise of Disney +, it's no secret that Disney is bent on dominating the streaming room as much as possible. Adjusted for Hulu's acquisition of AT & T's 9.5% in the company, the entertainment giant's stake in Hulu will climb to 66.7%, effectively giving Disney control over three streaming services, two niches and a wide range already have lots of appeal. During these early days of streaming, Disney has now decided to dive into this space, probably with the fact that they will still establish themselves and only with two major players ( Netflix (NFLX) and Hulu) . hope that in time it will be the player (as well as Netflix) when people talk about the place.
To maximize the chances of achieving this coveted status, management has agreed to enter into innovative talks with Hulu's only remaining owner, Comcast, where in the next few years, Disney is essentially guaranteed to acquire its one-third stake in firm. Unlike AT & T, where Disney bought the company's $ 1.43 billion in cash today (valued at $ 15 billion in Hulu), Comcast was able to negotiate something a little more interesting, which in the long run would add value to its own shareholders.
Immediately immediately, Disney will take full control of Hulu. As part of the deal here, Comcast has been issued a set that gives it the right to force Disney to buy its 33% ownership in Hulu at any time on or after January 2024. Meanwhile, Disney has been issued a call giving it the right to acquire from the latter the stock in Hulu at the same time (allowing both parties to force a transaction). In contrast to the AT&T sales, which forced an allotted value at the time of sale, 2024, an independent expert will estimate the fair value of Hulu and Comcast will be paid its pro rata share of the value.
To protect their own interests, but Comcast has also negotiated a $ 27.5 billion valuation floor for the company, almost double what AT&T's valuation has assumed. So even if the business goes south, Comcast will find itself isolated from any pain on that front. All in all, the implied profits on the floor that Comcast will go away with come to just under $ 9.08 billion. If AT & T had drafted a similar agreement, a $ 2.62 billion floor would have been guaranteed, but some discrepancies such as opportunity costs and debt reduction related to debt reduction would have to be compared to see if the minimum guaranteed wait would be worth it. In terms of Comcast's debt / equity ratio today, it stands at 1.39, while the net transfer rate is elevated, but not catastrophically 3.50, the company doesn't look to struggle for cash, so waiting for the value to rise from $ 4.95 billion At least $ 9.08 billion seems sensible.
There is another warning here where Comcast may end up walking away with a smaller piece of cake. You see every year that Hulu owners have to fund any cash losses for the company and Disney. Earlier this year, 2019 said it was the worst, with a $ 1.5 billion deficit at operating level. As part of the deal, Comcast has been given a statement of these obligations if it wishes, but unlike having to exercise its share of cash, equity of up to $ 1.5 billion per year will be issued by Hulu (probably to Disney ) to cover any shortcomings. This will again lead to dilution on Comcast's part. It is very important to mention that any deficiencies in equity will be limited to $ 1.5 billion a year, meaning any losses over it must be covered by Hulu debt. Although equity is issued every year in the future, the agreement between the companies states that Comcast's ownership will not fall below the 21% threshold, guaranteeing that it will be at least $ 5.77 billion in 2024.
The final component of this agreement that was disclosed to centers around Comcast and its content. According to the press release covering all this, Comcast has agreed that its NBCUniversal content currently on Hulu, as well as Hulu Live content and NBCUniversal channels on Hulu, remains in place "late" 2024. During this time frame, it is expected that Hulu will also be deployed on Comcast's Xfinity X1 platform. That said, it sounds as if some content will be terminated in 3 years, and that in one year Comcast will be able to put some of its Hulu exclusive content on its own OTT services, but unlike this, the company is forced to lower the fees it costs Hulu by (from a public perspective) an unspecified amount.
Although this is a lot to digest, my general idea here is that this is a fine win-win for both companies, but especially for Disney as it will gain absolute control and ownership over Hulu some years from now. In the meantime, Comcast will benefit from the growth the platform generates over the next few years in the form of receiving a payout in the future that is far greater than it will probably see today (as evidenced by the AT&T sales).  Takeaway
Currently, investors in both Disney and Comcast should feel happy with this trend, while investors in AT&T should probably be disappointed. Selling his Hulu bet was a mistake, but if you need or want to sell, the type of transaction negotiated by Comcast is the way to go. Although many will disagree with my claim that Disney is the biggest winner, I do not finally see anyone who goes away from this better than it will.
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