Amidst the active rumor mill about a possible Comcast deal to buy NBC Universal from General Electric, Wells Fargo Securities analyst Marci Ryvicker offered her evaluation of whether such a deal would make sense for Comcast.
“While the investment community frowns upon large deals, even ones that could be accretive (given that content margins are significantly greater than distribution margins), in our view an acquisition of NBCU makes sense as it relates to the cable networks. But the other assets – broadcast network, the O&O stations and the theme park units do not. We also believe that while a $13 billion price tag is more palatable than say a $25 billion or $35 billion price tag, the fact that there is ’billion’ after any number is likely to spook investors – especially ones that have become more interested in cable’s free cash flow story,” she wrote Thursday.
“While the company is not commenting (other than to say that speculation of a finalized $35 billion acquisition of NBCU is untrue), we do think that Comcast and GE are in the valuation process. The stock is likely to remain under pressure until there is a formal announcement from either company as to the structure and size of what’s to come. Once the uncertainties are ironed out, we expect the stock to recover somewhat – although investors married to the free cash flow story may flee to a relatively ‘safer’ company, such as Time Warner Cable, which has repeatedly stated its desire to stay out of the M&A market and use its excess cash to de-lever and return money to shareholders via a dividend (expected H1 2010),” Ryvicker said.
