Comcast (CMCSA: Charts, News), the American company best known for its high-speed Internet, phone and cable television services, has proposed a $14 billion buyout of General Electric’s (GE: Charts, News) NBC Universal division, which would make the $57.7 billion market cap company the largest media company in America. This massive merger has run into regulatory scrutiny, and U.S. regulators have announced that the deal will be completely reviewed by the end of the year. In addition, a new analysis from Former FCC Chief Economist William Rogerson has claimed that the deal would create an anti-competitive environment which grants Comcast far too much power in controlling the distribution channels of NBC programming to its competitors. With the number one market share in Internet and TV, will merging with the NBC, which holds 42% of the network television market, pass government approval?
Daily Chart
At the end of last year, Comcast had 23.6 million cable television customers, 15.9 million Internet customers and 7.6 million telephone customers, and fights a multi-front battle against Time Warner Cable (TWX: Charts, News), Cablevision (CVC: Charts, News), AT&T (T: Charts, News) and Verizon Wireless (VZ: Charts, News). 95% of its main revenue comes from cable, Internet and telephone services. The remaining sliver is brought in by consolidated national networks. The proposed merger, in effect since the end of last year, will pay $6.5 billion in cash to GE for a 51% stake in NBC Universal, and the remaining $7.25 billion is to be invested in its joint-venture networks, including E!, Golf Channel, G4, VERSUS and Style. GE plans to use $5.8 billion of that cash to buy out French conglomerate Vivendi’s 20% stake in NBC Universal so it can move forward with the deal. GE originally acquired NBC Studios in 1986 and 80% of Universal in 2004, and Vivendi bought a 20% stake in the newly formed NBC Universal in the same year. Those were times of plenty for GE, before the financial crisis of 2008-2009 hit hard and broke GE’s financial arm, sinking the company and shaving 61% of its stock price and market capitalization.
Comcast’s third quarter earnings, announced at the end of October, beat the Street with a 7% increase in revenue to $9.49 billion, or 31 cents peer share, up from $8.85 billion a year earlier. The analyst consensus was at $9.36 billion, with an EPS of 30 cents. The company lost 275,000 cable television customers, up from 265,000 losses the previous quarter. However, the losses were offset by an increase in Internet customers. The company also hiked rates, on average increasing subscriber costs 10% to $129.70 monthly. These numbers are the rationale behind Comcast’s decision to add NBC Universal to its video program portfolio.
Comcast has claimed that the regulatory review regarding the NBC Universal deal would end this year, but analysts believe it won’t receive the green light until early next year. Key concerns from government regulators include Comcast’s dominance over the emerging Internet video market and royalties it would receive for distributing its NBC Universal programming to competing cable and Internet providers. Critics claim the strategic purchase would allow Comcast to build a content chain which would lock out the company’s key competitors. The government also wishes to ban Comcast’s use of throttling speeds on suspicion of illegal downloads, and to enforce “net neutrality,” due to rising suspicions that Comcast is using the throttling technology to conserve its own individual user bandwidth.
William Rogerson’s analysis, which severely criticizes the deal, has been widely circulated on the Internet. In his study he claims that the merger would cost other consumers $2.4 billion in horizontal and vertical costs. Vertical harm would include the Comcast NBC Universal to raise licensing fees for NBC programs to competing cable companies, many of which are part of the ACA (American Cable Association). This would be an unfair advantage that would allow Comcast to siphon revenue from its rivals at its own discretionary rate. Due to NBC Universal’s valued suite of cable programming networks, such as its regional sports networks (RSN), it could demand higher fees from pay television providers across the board in exchange for regional sports coverage. In fact, Rogerson claims that areas in which NBC Universal owns a RSN and Comcast has a significant cable presence, such as Philadelphia, Chicago, San Francisco and Washington, D.C. will be hit hardest by the new alliance. These alleged vertical costs would rake in $1.43 billion from competitors and their customers into Comcast’s back pocket. Meanwhile, Rogerson claims that the horizontal costs of $1.14 billion will stem from Comcast’s controlling stake of a valuable, jointly-owned venture for both itself and GE, which will allow it tremendous wiggle room in costs for negotiating portfolio expansion. This analysis, backed by the ACA, has been criticized as a “flawed economic analysis,” by Comcast. “It relies on assumptions and calculations that are unsupported, directly contradicted by available data, and contrary to previous FCC rulings.”
The government’s highly anticipated decision will steer Comcast’s fate. If it passes, then the stock, which currently trades with a forward P/E of 14.08 and a quarterly dividend of 9.45 cents a share, would appear undervalued with serious growth potential.
Other News About CMCSA
Senator Asks FCC to Reject Comcast-NBC Deal
In this article: (CMCSA: Charts, News), (GE: Charts, News)
Study: Comcast-NBC Universal Merger Will Cost Consumers $2.4 Billion
In this article: (CMCSA: Charts, News)
Other Stocks in the News
Heinz 2Q net income rises on overseas growth – Emerging markets boost the ketchup maker once again.
In this article: (HNZ: Charts, News)
Google CFO Pichette Says Social Networking `Absolutely’ a Part of Strategy – Google continues scrambling for its anti-Facebook.
In this article: (GOOG: Charts, News)
Copyright 2010 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Other relevant articles you may like
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.
