Comcast NBCU spinoff raises hope for M&A. There aren’t good options
UNIVERSAL STUDIOS, ORLANDO, FLORIDA, UNITED STATES – 2019-07-18: Comcast sign logo on the wall of a building at Universal Studios. (Photo: Roberto Machado Noa/LightRocket via Getty Images)
Roberto Machado Noa | Light Rocket | Getty Images
Analysts think: comcast preparing for agreements. Comcast leadership says they were wrong.
The company announced Monday that it plans to separate its two main businesses: cable broadband and the media units of NBCUniversal and Sky. This is the second major structural change for the decades-old company in recent months, raising questions about potential future deals for both halves of the company.
But on a call with investors to discuss the split, Comcast executives came down with cold water:
“Absolutely not,” Comcast co-CEO Brian Roberts said Monday when asked whether investors should view the separation as a potential setup for future deals.
Comcast said Roberts, the son of founder Ralph Roberts and Comcast’s controlling shareholder, will not be CEO of either company after the separation but will remain “actively involved” in the leadership of both companies.
“This is the right move to put every company in the strongest position to create value, fully monetize its assets, and aggressively pursue its own organic growth strategies,” Roberts said.
Co-CEO Mike Cavanagh echoed this denial: “On the NBCUniversal side and [with] Sky, absolutely not.”
Is there a reason Comcast is squashing deal speculation? There might not be much of a good thing left.
Division before Merger and Acquisition
Wall Street and industry watchers have been calling for a spin-off of Comcast for years amid intense competition in the media industry and the rise of streaming.
While company leaders have discussed a separation at various points since at least 2019, executives never seriously considered it until now, according to a person close to the situation who spoke anonymously because of the private nature of the discussions.
When Comcast decided to spin off its cable TV networks to a separate publicly traded company less than two years ago, the spinoff that would ultimately become CNBC’s parent company Versant Media Group -The possibility of forming NBCUniversal as a whole never arose, the person said.
Instead, the move to separate NBCUniversal and Sky from the Xfinity cable business has come together fairly quickly in recent months, the person said.
Wall Street is witnessing a major media deal following an announced turnaround, said Forrester research director Mike Proulx. Before Warner Bros. Discovery initiated a sales process that resulted in dueling bids netflix And Paramount Skydance, WBD said it plans to split its assets into two companies.
“Comcast is following a strategy we’ve seen before. Warner Bros. Discovery broke itself apart by reaching a deal with Paramount. Now Comcast is doing the same with NBCUniversal. History is important here because Peacock increases NBCUniversal’s acquisition potential,” Proulx said.
Michael Angelakis, left, executive vice president and chief financial officer of Comcast Corp., and Brian Roberts, president and chief executive officer of Comcast Corp., attend the Allen & Company Sun Valley Conference on July 9, 2014 in Sun Valley, Idaho.
Scott Olson | Getty Images
This comes against the background of widespread consolidation. Paramount Skydance itself is the product of a merger that closed about a year ago. Struggled with streaming giant shortly after closure netflix For WBD assets.
As the media industry grapples with changing consumption habits, smaller deals have also come onto the market. earlier this month Fox agreed to acquire streaming platform company roku For 22 billion dollars. And broadcast station owners are desperate to merge to gain scale.
Other than bidding for WBD, Comcast stayed away from mergers and acquisitions and focused on its own businesses.
“It’s no surprise that both the media and telecommunications environments are becoming increasingly competitive and the pace of change continues to accelerate. We don’t see these conditions changing any time soon,” Cavanagh said on Monday’s call. he said.
Comcast said Cavanagh will become CEO of its media businesses after the spin.
“Our plan for NBCUniversal and Sky is to build and invest to grow. We have great ambition to pursue opportunities that will keep us ahead of changing consumer behavior and audience demands, and we now have the freedom to explore adjacent businesses where we have a right to play,” Cavanagh said.
Deal hurdles
The motivation behind splitting a company is often to create more deal opportunities. Still, it’s unclear what deals the newly created company of NBCUniversal and Sky assets could explore without serious regulatory challenges.
First, residential broadcast network NBC creates several obstacles. The company will not be able to merge with a company that has another national network; DisneyParamount Skydance, which owns ABC and owns CBS, is off the table.
Even if we take broadcasters out of the equation, a deal with Paramount Skydance, which is on something of a shopping spree under new CEO David Ellison, would be compelling once its deal with WBD is completed.
Fox, Linear TV’s remaining major player, has stayed away from traditional media after selling its entertainment assets years ago and likely has no appetite for another deal after the Roku deal.
Through the WBD sales process, Netflix has shown that it is open to making deals for the right assets.
However, Netflix’s interest in WBD was directed towards its film studio and streaming assets, setting aside WBD’s linear networks. Even with major sports content like the NFL’s Sunday Ticket, NBA and other top-tier movie content, it’s hard to imagine Netflix making such a shift and getting into linear TV through a hypothetical deal with NBCUniversal.
This leaves very little on the table when it comes to media deals, and all the biggest players are outspoken. Comcast didn’t say Monday how much it expects either company to be valued after the spin, but between the Universal theme parks business, a significant if small streamer, and a respectable content library, NBCUniversal will likely be too big for a smaller player to swallow.
A similar scenario could happen on the cable side.
cord protectors
A Comcast Xfinity work truck is seen in Miami, Florida on April 23, 2026.
Joe Raedle | Getty Images
Comcast assets that remained after the split (broadband, mobile and pay TV under the Xfinity brand) went from gangster-busting growth to stagnation and an often quarterly loss of broadband customers as competition from wireless and satellite providers increased.
The market immediately rewarded the stock Charter CommunicationsComcast’s announcement follows another cable giant in the midst of completing a different acquisition on Monday.
Charter shares rose 10%, signaling that investors may be in favor of a possible Comcast and Charter merger that would tie together the two largest U.S. cable companies.
Charter and Comcast have invested heavily in their broadband networks and mobile businesses even as competition intensifies. They’re part of a joint venture where Charter cable TV customers can use Comcast’s Xumo streaming devices.
They have also each aggressively changed their pricing packages to go after and retain customers. But such moves did little to benefit either stock price.
There are some historical precedents driving Wall Street’s expectation of a potential deal. Comcast tried to acquire Time Warner Cable in 2014. When Comcast withdrew its bid amid regulatory opposition, Charter acquired the asset — then the country’s second-largest U.S. provider. The majority of today’s Charters are Time Warner Cable.
Still, there are reasons to be skeptical, according to MoffettNathanson analyst Craig Moffett. The Justice Department was ready to block the Comcast-Time Warner Cable deal. Even if there was a hypothetical Comcast-Charter deal received federal approval Moffett said in an interview that this would have to be adopted on a state-by-state basis, and that might not be easy in Democratic-controlled states like Massachusetts, Illinois and Maryland.
“You’re going to have to go through individual state utility commissions,” Moffett said. “There’s likely to be pretty solid opposition in blue states that have traditionally opposed these types of mergers.”
There is also the enormous debt burden that such a combination would bring, according to a person familiar with the matter.
Charter is in the midst of completing its merger with Cox, which will leave it with a debt burden of more than $100 billion after assuming Cox’s debt. Assuming Comcast assumes much of the post-spin debt burden in an effort to lighten NBCUniversal (the hallmark of the Versant spinoff was the low amount of debt in the new company), combining the two cable companies would create a heavy debt load, the person said.
There are also strategic questions about the Charter-Comcast deal. In 2014, when Comcast sought to acquire Time Warner Cable, one of the drivers of the transaction was the ability to gain leverage over media programmers in TV carriage disputes by adding subscribers. More than a decade later, the cable TV business has become a much smaller component of both Charter and Comcast, reducing the value of these potential synergies.
Moffett said having more customers creates little broadband synergy. He said cable businesses are local operations that are largely unaffected by the increase in scale.
“If you have systems in North Carolina, your cost structure in Chicago is not meaningfully affected,” Moffett said.
Of course, Michael Angelakis, Comcast’s former chief financial officer and the new CEO of its cable assets after the spin, said Monday that he believes the company has the network assets it needs to compete.
future transactions
Comcast may be looking years ahead rather than immediate action.
“It may not be close. But I think it’s probably setting the stage on the M&A front,” said Jonathan Miller, a media industry veteran who currently serves as chief executive of Integrated Media, which specializes in digital media investments.
“This is literally being done to have more options for different opportunities,” Miller added.
The timing of a future deal may also depend on technical details. Comcast has estimated a one-year timeline for closing the split. Afterwards, standard US tax regulation mandates potential acquiring companies must wait even longer before purchasing a recently departed target. But there may be varying degrees of how long a company should wait, depending on details like the type of deal and its timing, one person familiar said.
Disclosure: Versant Media Group is the parent company of CNBC.
