Wall Street blows hot and cold on Comcast/NBCU tie-up
Wall Street analysts spent yesterday chewing down on the news of a possible Comcast deal for a 51% stake in a new NBC Universal entity. Here’s our round-up of those notes to investors from the most negative to the most positive:Barclays Capital analyst Vijay Jayant is firmly against the deal.
“Empire building, the lack of noticeable synergies from prior vertical integrations, a valuation-dilutive transaction, and long-term concerns about CMCSA becoming a commodity pipe were among the themes we heard from investors…Overall, we don’t view this potential deal, at the suggested price, as an attractive use of shareholder capital.”
Steve Winoker, senior analyst at Bernstein Research, hedges a little, not great news for Comcast and but good news from G.E.’s perspective.
“For Comcast, we continue to view the deal as a net negative, even if it now appears ‘less unattractive,” than the worst case scenario of an outright acquisition. On the plus side, Comcast would gain effective control over content that accounts for 20% of US viewing hours. That would afford them enormous leverage over the evolution of new distribution models, partially dispensing with an issue that some have seen as a dire risk to the company. On the negative side, a deal would likely bring with it a heavy regulatory burden, including arbitration provisions in the even of programming disputes, possible divestitures of broadcast stations in Comcast markets and an unforeseeable range of “Christmas Tree ornament” provisions that would likely festoon the final deal.
“For GE, we view such a deal as a net positive, depending of course on how the final numbers play out.”
Laura Martin, entertainment analyst at Media Metrics/Soleil Securities sees upside and downside.
“We estimate that all of NBC U is worth $20-25B, so the bad news is that it would be a significant acquisition for Comcast (a $45B market cap) and the good news is that we don’t expect Comcast to have much competition for the asset so the price might be inexpensive. TWX (Buy) ($34B mkt cap) is the most likely competitor for NBC. Otherwise, Comcast should be able to negotiate a great price to offload NBC U from GE.
“We believe that companies in the media space that are strong and have balance sheet capacity will be purchasing assets from weaker companies at advantaged prices. We expect the wave of acquisitions that began with Disney (DIS, Hold) buying Marvel (MVL, NR) to continue into 2010, and the result will be a dramatically different competitive landscape 12 months from now.”
Wells Fargo’s senior analyst Marci Ryvicker upgraded Comcast she likes the deal so much.
“We view yesterday’s news of a potential transaction between Comcast & NBCU as a positive for 2 reasons: 1) it provides another leg of growth (higher margin business) and 2) the structure of a potential deal should not result in additional equity issuance or a downgrade to Comcast’s investment grade debt rating. Even without a deal, we view Comcast as fundamentally undervalued and believe yesterday’s drop provides a good entry point.
“Should this transaction occur, Comcast would have a controlling stake in good-performing cable networks and could also utilize NBCU’s content library. Clearly there is less of a need for the broadcast network/O&Os or theme parks, which could be further spun or eventually sold.”