Comcast paid what appeared to be a hefty premium for European pay TV provider Sky, but CEO Brian Roberts said his company is comfortable with the price tag.
In September, Comcast faced off against 21st Century Fox in a U.K. regulatory auction for Sky and emerged with a winning bid of £17.28 per share, setting an implied value of $40 billion (£30.6 billion).
MoffettNathanson analyst Craig Moffett said that price was way ahead of where Sky was valued just months earlier.
“Way back in December 2016, before Fox first put Sky into play, the wisdom of the markets had valued Sky at just £7.67 per share, or about 8x 2018E EBITDA,” Moffett wrote in a research note. “On Saturday, Comcast agreed to pay £17.28 ($22.59), a 125% premium to the stocks unaffected price of 21 months ago. Comcast’s ‘winning’ bid values Sky at a stupendous 15x F2019E EBITDA.”
During today’s investor call that split time between Comcast’s third-quarter results and discussing the Sky acquisition, Roberts was asked how Comcast could pay the price it paid for Sky and still create economic value. Roberts said he thought that Sky was mispriced for reasons which could include five years of M&A flux and a large shareholder going through some regulatory uncertainty.
Roberts also said that new business opportunities in Europe have emerged around sports rights and broadband that have potentially increased the value of Sky.
“First, as a standalone, I think [Sky] supports the values. Together, I think it increases the value. Time will tell,” Roberts said.
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Roberts said the Sky acquisition will benefit Comcast right away in terms of some expenses but he said the real opportunity comes from the combined companies have more than 50 million homes covered globally and how that will impact innovation, purchasing, relationships, new products and other aspects of Comcast’s business.
“We’ve always believed that scale mattered. I think that’s why our results at Comcast Cable were so stellar and why NBCUniversal has been able to grow as much as it has,” Roberts said.