Comcast shares rose more than 7% on Monday after the company unveiled its plan to spin off NBCUniversal into a separate publicly traded company, unwinding a corporate combination that analysts said had weighed on the stock. The S&P Media & Entertainment Group rose nearly 4% on the day, and other media stocks also gained amid speculation the breakup could trigger more dealmaking.
Craig Moffett of MoffettNathanson wrote in a note to clients that the split would correct a structural problem. “Comcast now sheds its conglomerate discount and each company can adopt a capital structure appropriate for the times,” Moffett said. He called the breakup decision “wonderful, overdue.”
The company’s stock had traded at a steep discount under the combined structure. According to the Wall Street Journal, Comcast’s valuation multiple made it cheaper than 97% of other S&P 500 companies. Over the past five years, the stock’s average trading multiple was about 50% below both Disney and the S&P 500, according to FactSet data cited by the Journal.
The Wall Street Journal’s Dan Gallagher wrote that if Comcast landed a multiple similar to Disney’s, its shares would rise more than 90% from Monday’s elevated price.
The split is expected to take roughly a year to complete. UBS analyst John Hodulik said in a note that “any M&A would likely take time in order to preserve the tax free nature of the spin.” The tax-free design of the plan could be jeopardized if Comcast pursued new deals within two years of completing the separation.
Speculation nonetheless emerged that Netflix could be interested in acquiring the standalone NBCUniversal, which would bring Universal Studios and Universal theme parks into the streaming giant’s portfolio. Wolfe Research analyst Peter Supino said he expects Netflix to make a play for NBCUniversal but cautioned that “beyond Netflix, potential bidders for NBCU are sketchy,” noting that both Apple and Amazon declined to pursue Warner Bros. earlier this year.
Supino’s Netflix theory echoes the streaming company’s earlier pursuit of Warner Bros. Discovery, which ended in February when Warner’s board accepted a competing bid from Paramount. During that process, Netflix faced a revolt from its own shareholders over concerns about price, political pressure, and exposure to shrinking traditional TV networks — the same concerns that would likely arise in a bid for NBCUniversal, according to analysts.
Comcast Chairman Brian Roberts rejected the suggestion that deal possibilities drove the decision. “Absolutely not,” Roberts said on a conference call Monday when asked if future transactions factored into the plan.
Gallagher wrote: “Some breakups are actually worth the drama. Time on one’s own can also be healthy.”