Weighing the investment prospects for Comcast shareholders following the cable giant’s admission that it’s in the “advanced stages” of prepping a bid for select 21st Century Fox assets, Macquarie analyst Amy Yong said Comcast will have to endure quite a bit of pain until it enjoys some substantial long-term synergies, should the deal actually occur.
“We believe the near-term negatives could pressure Comcast shares for some time,” Long wrote in a note to investors yesterday.
For one, Yong believes Comcast’s aggressive pursuit of M&A—which includes its $31 billion bid for U.K. satellite operator Sky—calls into question its organic growth prospects, which are challenged by a shrinking video business, among other factors.
The regulatory review of a Fox purchase, she noted, would be “prolonged,” and it could cause the federal government to reconsider the consent decree put on Comcast’s 2011 purchase of NBCUniversal—conditions that were set to expire later this year.
Then there’s the debt.
“Assuming a 15% premium on Disney’s offer and all-cash, we believe leverage would go slightly above 4X, tarnishing Comcast’s pristine balance sheet,” said Yong, who is currently rating Comcast at “neutral” status.
The long-term upsides could be substantial, however, with the Fox assets adding value to both cable and NBCU.
“On the cable side, one of Fox’s crown jewels is its regional sports networks, which could give Xfinity additional selling points to retain subscribers,” she said.
Also, Comcast would suddenly have a 60% stake in Hulu.
Synergies, Yong added, could be valued as high as $1 billion given cross-selling opportunities.
In December, Comcast’s mostly stock bid of $60 billion for a large portion of 21st Century Fox assets was rejected by Fox management, headed by Rupert Murdoch, in favor of a $52 billion all-stock offer from The Walt Disney Company.
But earlier this month, it was reported that Comcast secured a $60 billion bridge loan from its creditors and is closely following an upcoming court decision that will determine if AT&T can buy Time Warner Inc. for $85.4 billion. Should AT&T get the green light without orders of a major, deal-breaking divestment, sources close to Comcast have reportedly said it will move once again on Fox.
“In view of the recent filings with the U.S. Securities and Exchange Commission by The Walt Disney Company and 21st Century Fox, Inc. in preparation for their upcoming shareholder meetings to consider the acquisition of Fox by Disney, Comcast Corporation confirms that it is considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney (which do not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets),” read a Comcast statement released Wednesday morning.