The takeover fulfills CEO Brian Robertss dream of transforming Philadelphia-based Comcast into a media powerhouse with control of distribution and content. After shareholders blocked the companys 2004 bid for Walt Disney Co., Roberts kept pursuing this goal. His push to vertically integrate the nations biggest cable operator is largely a defensive move. Comcast doesnt want to become a dumb pipe, says Susan Crawford, a professor at Yeshiva Universitys Benjamin N. Cardozo School of Law.
Negotiated in early 2010, the deal limits risk and provides upside for Comcast and GE. NBCU assumed $9.1 billion in debt and gave the proceeds to GE, which bought Paris-based Vivendis 20 percent stake in NBCU for $5.8 billion. Comcast and GE then formed a joint venture, with GE contributing the NBCU businesses, valued at some $30 billion. Comcast contributed its cable networks and digital media properties, valued at $7.5 billion, and paid GE $6.2 billion.
GE gets a sharper focus on its core business, cash to reinvest and a hand in the joint ventures potential growth. We are reducing our ownership stake from 80 percent to 49 percent of a more valuable entity, CEO Jeffrey Immelt said in announcing the transaction.
Because it gives Comcast so much sway over content, pricing and the future of the media landscape, the acquisition sparked criticism from public interest groups. Under the direction of executive vice president David Cohen, an influential figure in Pennsylvania politics, Comcast hired more than 75 former government employees as lobbyists and donated vast sums to legislators pet charities. As a result, regulators likely found it politically untenable to block the merger.
As Cardozos Crawford explains, the deal is all about cable channels, which account for 80 percent of NBCUs operating cash flow; the NBC network, Universal Studios and theme parks make up the rest. Control over top-quality content strengthens Comcasts cable packages and lets it keep potential rivals costs high. The acquisition of NBCU gives Comcast a seat at the negotiating table whenever content is discussed, says Joseph Turow, a professor at the University of Pennsylvanias Annenberg School for Communication.
Investors were skeptical of the takeover which doesnt offer the ample top-line or cost synergies that usually justify deals of this size worrying that it would prevent Comcast from returning capital to shareholders. In response, the cable giant increased its annual dividend twice and accelerated its stock repurchase plan. Comcast shares, which traded at $15.91 on December 3, 2009, when the merger was announced, closed above $26 late last month.
In 2010 the NBCU businesses made $3.35 billion in earnings before interest, taxes, depreciation and amortization, so Comcast paid a multiple of 9 times enterprise value over ebitda, notes Jason Bazinet, a New Yorkbased media analyst at Citigroup. At the very least, the deal is a very smart financial transaction, says Bazinet, who expects ebitda of $17.9 billion on revenues of $55.8 billion next year. The company bought a scarce asset at a very reasonable multiple on depressed levels of ebitda.
Stephen Burke stepped down as Comcast COO to become CEO of NBCU. A former president of ABC Broadcasting and an ex-COO of Euro Disney, hes also staying on as executive vice president at Comcast. Burke has a lot of strong experience in both content and distribution, which will be very useful in integrating the two companies, says David Joyce, a media analyst at trading firm Miller Tabak + Co. in New York.
The deal sets up Comcasts eventual buyout of GE. It is a very attractive structure, says Comcast spokeswoman DArcy Rudnay. If its forecasts are right, Comcast will be able to purchase GEs remaining interest in NBCU with free cash flow from the joint venture.