Disney Inches Closer to Owning Hulu

For months, speculation has swirled that AT&T (NYSE: T) would sell off its stake in popular video-streaming platform Hulu. The telecommunications and media behemoth found itself owning 9.5% of Hulu following its acquisition of Time Warner last year, a deal that substantially added to Ma Bell's debt load. Elsewhere in media megamergers, Disney (NYSE: DIS) just closed its own acquisition of Twenty-First Century Fox's entertainment assets, which gave it majority ownership of Hulu.

AT&T has just pulled the trigger on selling its stake.

Hulu interface display on a TV, a tablet, and a smartphone

Image source: Hulu.

Paying down debt

AT&T and Hulu announced yesterday that they have reached an agreement for AT&T to sell its minority stake back to Hulu. The deal values Hulu at $15 billion, which means AT&T got $1.43 billion for its 9.5% stake. Government or third-party approvals weren't necessary, and the deal immediately closed upon signing.

"We thank AT&T for their support and investment over the past two years and look forward to collaboration in the future. WarnerMedia will remain a valued partner to Hulu for years to come as we offer customers the best of TV, live and on demand, all in one place," Hulu CEO Randy Freer said in a statement.

T Total Long Term Debt (Quarterly) data by YCharts.

AT&T says it will use the proceeds to pay down debt, which stood at a whopping $176.5 billion at the end of 2018.

Two down, one to go

Hulu was originally created as a joint venture between Disney, Time Warner, Fox, and Comcast (NASDAQ: CMCSA). Two of these partners have now sold off their stakes in one way or another, leaving just Disney and Comcast. Following AT&T's exit, Disney now owns two-thirds of Hulu, with Comcast owning the remaining third. Given Hulu's current valuation, Comcast's stake is worth $5 billion.

Disney has made it clear that it hopes to bundle its growing portfolio of over-the-top (OTT) streaming services, ESPN+ and Disney+. The House of Mouse finally announced details about Disney+ last week, saying it will be priced aggressively at just $7 per month. Hulu recently cut the price of its most popular plan to $6 per month. In an interview with Bloomberg just days after the Disney+ unveiling, CEO Bob Iger discussed bundling and buying out partners:

Hulu, we still have minority partners and everything that we do with Hulu has to be done with them in mind. So bundling would be something that we might take to the Hulu management and the board, but it would require the approval [of minority partners]. But we think that there will be consumers that want all three and eventually we want to make it possible for a consumer to buy all three.

When asked directly about buying all of Hulu, Iger responded, "We'll see. We've been in conversations with both partners about that possibility, but it's still a little early to speculate." Perhaps it wasn't too early to speculate after all.

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Evan Niu, CFA owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

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