Analysts praise Comcast's deal to buy up NBCUniversal

Posted: February 15, 2013

Comcast Corp. could have run NBCUniversal in a joint venture with General Electric until 2018. But acting now to buy the remaining 49 percent of the news and entertainment conglomerate, investment analysts say, means that Comcast does not risk having to pay more for it later.

Because Comcast has directly operated the company for two years, the deal signals confidence that the cable giant can restore rundown NBCUniversal to health, the analysts say.

On Wednesday, Jessica Reif Cohen of Bank of America Merrill Lynch and Matthew Harrigan of Wunderlich Securities called the deal a "steal." It values NBCUniversal at about $39 billion, though Harrigan said in a phone interview that he thought "the thing is worth close to $50 billion."

For its part, GE, which was wounded by the deep recession and 2008 financial crisis, will benefit from billions of dollars it can use right away instead of holding the assets in a business it would like to get away from.

"It's good timing for both parties," said Tony Wible, a managing director at Janney Montgomery Scott in Philadelphia. Comcast is buying NBCUniversal at a "price comparable to its peers, as opposed to a premium you would have with a takeover."

"They aren't putting off to tomorrow what they can do today," said Agata Kaczanowska, senior industry analyst with IBISWorld Inc. an industry-research firm in Santa Monica, Calif. IBISWorld forecasts that the cable-network industry will grow 2.9 percent a year through 2019, which should be good for NBCUniversal.

Tuesday afternoon, after the stock markets closed, Comcast announced that it was rapidly accelerating its plan to acquire full control of NBCUniversal by purchasing GE's stake for $16.7 billion within the next six weeks. Comcast acquired the first 51 percent in early 2011 after a protracted review by federal regulators, which will not be required this time.

Comcast will also buy the NBC studios and offices at 30 Rockefeller Plaza in Manhattan and CNBC's offices and studios in Englewood Cliffs, N.J., for $1.4 billion. The deal is expected to boost earnings per share in 2013.

Said Randy Warren, chief investment officer of Warren Financial Service in Exton, an investment-management firm: "All these assets will be going up in price, and you might as well do it now." He cheered Comcast for putting its cash into a business that could return profits to shareholders, as opposed to Apple Inc., which has been criticized for holding more than $100 billion.

"Cash won't make anything for investors," Warren said.

Comcast shares closed at $40.13 Wednesday, up $1.16, or 2.98 percent; GE closed at $23.39, up $0.81, or 3.59 percent. GE is expected to use cash from the deal for acquisitions and to boost the shares it buys from shareholders.

Analyst Vijay Jayant of International Strategy & Investment Group L.L.C. said that Comcast was taking advantage of healthy credit markets and low interest rates, and that his firm had raised its price target on Comcast shares to $47 from $43.

"Comcast did not pay a premium to buy GE's NBCU stake," Bryan Kraft of Evercore Partners said in a morning research note. Referring to Comcast's Tuesday report on fourth-quarter and full-year 2012 earnings, he said: "In a strange twist of fate, NBCU's cable networks once again disappointed, while broadcasting, film and the theme parks all beat our estimates, more than making up for the cable-network shortfall."

The cable networks, Kraft said, appeared to be hurt by the lockout in the National Hockey League and ratings declines.

For the quarter, cable-network revenue was flat at $2.2 billion, Comcast reported. For the year, cable-network revenue rose 3.3 percent, to $8.8 billion.

NBCUniversal's cable networks include USA, Bravo and Syfy. Cable networks' operating cash flow in the fourth quarter, or profitability, fell 3.5 percent, to $890 million. Company executives said ratings and higher costs for original programming crimped those profits.

At the same time, revenue for the broadcast-TV network rose 7.9 percent in the fourth quarter, film revenue jumped 9 percent, and theme-park revenue climbed 4.5 percent.

In a Wednesday morning conference call, Comcast CEO and chairman Brian Roberts said that the company's gambit in the 1990s and early 2000s to assemble a national cable-TV distribution system was paying dividends for shareholders and that Comcast now had to learn how to make the telecommunications network and NBCUniversal work both together and separately.

Comcast executives warned analysts in the call that TV programming costs could increase in the "low double digits" in 2013 in its legacy cable business - inflation that could be passed to Comcast's TV customers. Programming costs rose 7 percent in 2012.

Cable's growth engines of Internet customers and business services remained strong in the fourth quarter, and Comcast intends to invest in NBCUniversal businesses in 2013, the executives said.

Vice chairman Michael Angelakis and NBCUniversal head Steve Burke said they expect to grow organically, rather than seeking an international acquisition.

Coming Sunday

Joseph N. DiStefano reviews "Captive Audience," a book by Susan P. Crawford that makes the case that Comcast is becoming "the communications equivalent of Standard Oil."

Contact Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews .com or follow on Twitter @bobfernandez1.

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