Skeptical Comcast Holders Mull Benefits Of Deal For NBC
October 02 2009 - 2:24PM
Dow Jones News
Comcast Corp. (CMCSA) shareholders, long skeptical of the
company's interest in a big media transaction, may be more
receptive to a deal now for NBC Universal because of the shifting
media landscape and relatively small cash payment being asked of
the cable giant.
According to people familiar with the deal, Comcast would be
able to secure a majority stake in broadcasting giant NBC Universal
from General Electric Co. (GE) in exchange for Comcast's content
assets and cash - a total price tag that shareholders could find
palatable.
Meanwhile, Comcast's huge distribution business faces long-term
threats as TV networks find their own means of distribution on the
web, so a larger hand in the content business could be essential
for the company's future if it comes at the right price.
"There's a case that can be made that this could be an
attractive deal," said John Shapiro, managing director of Chieftain
Capital Management. "It's important that if Comcast makes a deal,
they can come out and demonstrate to shareholders that it's a
really a good deal."
Chieftain, with 29 million Comcast shares in its portfolio, is a
long-time holder with a record of being critical of the cable
giant. Early last year, the firm sent a letter to Comcast's board
demanding that Chief Executive Brian Roberts step down, describing
the company's management and board supervision as a "Comcastrophe"
- playing off the company's advertising tagline of "Comcastic."
"We felt at the time that they were always too focused on growth
rather than return on capital and cash flow," Shapiro said. "Since
then, they've taken steps to rebuild a relationship with us, and
they have very publicly gone in a different direction."
After Chieftain's critique in 2008, Comcast announced its first
regular dividend in nearly a decade along with plans to buy back
$6.9 billion in stock. It also scaled back executive compensation,
and the company made its free cash flow a focus of its financial
reports.
Still, its stock price has languished.
"There are overarching concerns about whether this company will
make a big media acquisition, and that has definitely weighed on
the stock," Shapiro said.
Shares of Comcast fell 12 cents to $15.55 after shedding 7.2%
Thursday on the news. Over the past two years, the stock has lost
more than a third of its value, even as Comcast's subscription
business has grown despite the economic slowdown.
The company faces lingering skepticism from shareholders after
its $50 billion bid to acquire Walt Disney Co. (DIS) in 2004 was
panned by investors and ultimately abandoned. At its annual
shareholder meeting last spring, a solid majority of its public
holders voted in favor of abolishing the dual-class share structure
that allows the Roberts family to keep control over the
company.
Elsewhere, Time Warner Inc. (TWX) has been rewarded by the
market for ending its marriage of content and distribution by fully
spinning off its cable arm, Time Warner Cable Inc. (TWC), earlier
this year. The company's chief executive, Jeff Bewkes, has
acknowledged that the media industry has a record of
growth-by-acquisition that has been long on hype and short on
returns.
But Time Warner's ill-fated merger with AOL in 2000 came at the
height of the dot-com bubble and when AOL was a Wall Street
darling. This time, Comcast's NBC talks come amid recession, and
the old media conglomerate has fallen out of favor as it grapples
with structural problems.
"This is a good time to making purchases," Shapiro said, noting
that Comcast's chief financial officer, Michael Angelakis, has a
private equity background and looks at deals through a purely
financial prism.
People familiar with the negotiations say that Comcast is
talking about merging its own content assets with NBCU's to form a
private company that's majority-owned by the cable giant, and
Shapiro said that would be welcomed by Comcast holders who have
struggled to put a value on its content portfolio.
"Such a deal could rationalize the content part of [Comcast's]
business," said Shapiro. "So, there are a lot of questions here.
The devil is in the details."
-By Nat Worden, Dow Jones Newswires; (212) 416-2472;
nat.worden@dowjones.com