Comcast rescripts its stale convergence plotline
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Nov 20 (Reuters Breakingviews) -As any TV watcher knows, storylines get tired. The bold marriage plot scripted by Comcast CMCSA.O more than a decade ago to unite pipes and programming is one that has become stale. To shake things up, the $160 billion cable operator plans to carve out CNBC, the Golf Channel and other networks acquired as part of its NBC Universal mega-deal. Although only a small change, it has the potential to refresh the franchise.
Comcast said on Wednesday it would spin off a range of channels to shareholders in a tax-free transaction next year. Broadcaster NBC and streaming service Peacock are staying with the parent company alongside the theme parks and hulking cable, internet and wireless businesses. The newly-created company will have the same dual-class structure as Comcast, with boss Brian Roberts keeping a firm grip.
President Mike Cavanagh says, curiously, that the new structure fosters an “integrated media company.” The reality is that traditional TV is rapidly declining. In the media division that houses Comcast’s networks, EBITDA tumbled 18% in 2023 from the previous year.
Escorting such assets out should in theory give them a better chance to lead the inevitable industry consolidation that will aim to slash costs and leverage the benefits of size. Warner Bros Discovery WBD.O and Walt Disney DIS.N are among those facing similar challenges. A separate entity also might help ease some regulatory concerns about future mergers.
The new venture will pale next to the mother ship. Networks included generated $7 billion of revenue last year. Use the 25% margin estimated by Bernstein analysts, and it implies EBITDA of nearly $1.7 billion. On a multiple of 7 times – the average of Warner Bros Discovery, Fox FOXA.O and Paramount Global PARA.O per Visible Alpha – the enterprise would be worth some $12 billion. Assume it exits with the same 2.4 times ratio of debt to EBITDA that Comcast holds, and it would equal $4.2 billion, imputing an equity value of about $8 billion.
When Comcast paid $39 billion for NBC Universal in a two-step deal with General Electric, it ran contrary to the prevailing media strategy at the time of splitting content and distribution. Its total shareholder return, including reinvested dividends, since unveiling the plan in December 2009 is nearly 700%, lagging broadband rival Charter Communications CHTR.O but outpacing Disney, Verizon Communications VZ.N and the benchmark S&P 500 Index .SPX. This new divorce twist should help keep that likable value story going.
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CONTEXT NEWS
Comcast said on Nov. 20 that it plans to create a new publicly traded company comprised of NBC Universal cable networks including CNBC, MSNBC, E! and the Golf Channel. The cable operator expects the tax-free spinoff to be completed in a year.
For the 12 months ending Sept. 30, the group of networks being separated generated about $7 billion in revenue.
Mark Lazarus, chairman of NBC Universal Media Group, will serve as CEO of the new company, which will have the same dual-class shareholding structure as Comcast.
Goldman Sachs and Morgan Stanley are serving as financial advisers.
Comcast's shareholder returns keeps pace with peers https://reut.rs/3OfMerJ
Editing by Jeffrey Goldfarb and Pranav Kiran
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