To the surprise of some Wall Street players, Comcast CEO Brian Roberts showed the financial discipline he has pledged to investors and is letting Liberty Media buy Comcast's stake in home shopping giant QVC.
Liberty put a fat $14.1 billion value on QVC, meaning that Comcast will receive $7.9 billion for its 56% stake in the network. That's 5%-10% more than some analysts had been valuing QVC and a huge $145-$150 per U.S. subscriber. By comparison, entertainment cable networks sell for $20-$30 per sub.
With $4.4 billion in sales last year, QVC is not just the largest shopping network but—surprising to some—it's the second-largest television network of any
kind. By expertly hawking the likes of Corvette 50th Anniversary commemorative coins and Quacker Factory Sparkle and Shine V-neck T-shirts, QVC generates more revenue than CBS, ABC or Fox and comes close to the ad-sales revenues of NBC. And with $850 million in operating cash flow, QVC is more profitable than all the broadcast networks combined.
Liberty is simultaneously chasing Vivendi Universal Entertainment, which would be an $11 billion commitment. The mission is to transform Liberty from largely a mutual fund of partial stakes in other companies (News Corp., Discovery Communications, AOL Time Warner) into something that owns and operates more assets.
The deal played out just as Liberty CEO John Malone had hoped. In January, he pulled a trigger in the QVC partnership agreement largely because Comcast was stretched financially from its $58 billion takeover of AT&T Broadband.
Roberts has pledged to stockholders, bondholders, lenders and the debt-ratings agencies that he will cut the company's debt. Comcast's $58 billion takeover of AT&T Broadband ballooned the MSO's debt load to $29.5 billion. It has since dropped to $25 billion.
In the past, Roberts would have probably leveraged up to buy out Liberty's stake. But Comcast is more financially disadvantaged than it will be for years.
Still, many industry executive had assumed that, with the capital markets perking back up, Roberts was more likely to stretch, despite his pledge. "Brian did a good job of head-faking everybody," said Morgan Stanley media analyst Richard Bilotti. Now Comcast will be "dramatically deleveraging."
Comcast Cable President Steve Burke said the company is committed to its financial plan, particularly at the solid price. "We're disciplined as buyers," he said. "We're disciplined as sellers."