BREAKINGVIEWS-NBCUniversal: a solid deal past its prime

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Saba

NEW YORK, July 27 (Reuters Breakingviews) - Comcast CMCSA.O boss Brian Roberts can be somewhat proud as a peacock. Although his cable operator's acquisition of NBCUniversal from General Electric 15 years ago hasn't panned out as planned, there's at least value to be salvaged.

During the depths of the financial crisis in 2009, GE raised much-needed cash by selling Comcast 51% ownership in NBCUniversal and its studios, TV networks and theme park businesses. Comcast paid $6.2 billion upfront while throwing in the Golf Channel and other networks, at a $7.3 billion valuation. It exercised an option in 2013 to buy the rest for $18 billion.

Roberts declared it a “perfect fit,” giving subscribers programming “anytime, anywhere.” In the years that followed, however, Netflix NFLX.O, Amazon.com AMZN.O and Apple AAPL.O blazed the online streaming trail, forcing incumbents to follow. Comcast's business model made less and less sense, and the company unveiled plans last month to cleave itself.

As a standalone enterprise, NBCUniversal should be worth more now. The business, which includes the studio behind “The Odyssey” and the new Universal Epic destination in Orlando is expected to generate nearly $4 billion in EBITDA this year, according to Visible Alpha. Using Walt Disney’s DIS.N valuation multiple of 10 times suggests NBC Universal is worth $40 billion.

Add the $9 billion Disney paid Comcast for its stake in streaming service Hulu. Versant Media VSNT.O, the cable networks enterprise spun off in January, is worth another $7 billion. Altogether, before factoring in European pay-TV business Sky, NBCUniversal is worth nearly $55 billion, almost twice the original figure.

Over the 13 years Comcast fully owned NBCUniversal, it generated some $85 billion in adjusted EBITDA while chewing up about $28 billion of capital expenditure, nearly half of it in recent years to fund theme-park expansion. Another $4 billion or so went to capitalizing software and intangibles. The sum stacks up reasonably well against the $24 billion of cash Comcast spent to buy the business. Crudely putting the initial outlay against today's theoretical valuation implies a roughly 6% annualized return.

There's evidence Roberts held on too long. After five years of owning NBCUniversal, the parent company's 95% total shareholder return, including reinvested dividends, was on par with the S&P 500 Index .SPX. Fast forward to today, and Comcast's 67% pales next to the broader market's 500%. It's a reminder that big deals that succeed financially, even strategically sensible ones, are a rare bird.

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CONTEXT NEWS

Comcast said on July 23 that second-quarter revenue from its NBCUniversal media and theme park properties increased 23% from a year earlier to $10.7 billion, partly boosted by the FIFA World Cup broadcast. Its streaming service Peacock also reported its first profit, of $189 million.

The cable operator unveiled plans on June 29 to split into two publicly traded ​companies using a tax-free spinoff of NBCUniversal and Sky.

(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on SABA/jennifer.saba@thomsonreuters.com))