Comcast Dividend Won't Buoy Stock, Investors Say
Dec. 4 (Bloomberg) -- Comcast Corp.’s 40 percent dividendboost won’t be enough to relieve concern that the cableoperator’s deal to take control of NBC Universal will crimpshareholder returns, some investors said.
Before yesterday, Comcast had dropped 11 percent in Nasdaqtrading since reports of the $37 billion venture with GeneralElectric Co. first appeared in September. Investors say thatChief Executive Officer Brian Roberts’s hunger for programmingassets may hinder dividend increases and share buybacks.
“This is a company that generates $4 billion or $5 billiona year in free cash flow and they’re giving us back afraction,” said Virge Trotter, a senior analyst at Fairport,New York-based Manning & Napier Advisors Inc., which owned12.1 million shares as of Sept. 30. “It’s kind of a tokencompared to how much cash flow we could be getting back.”
Comcast, the largest U.S. cable-TV provider, said thedividend increase reflects the company’s confidence in itsbusiness. In addition to the 9.5-cent-a-share quarterly payout,Comcast said it’s committed to completing its stock buybackprogram. That announcement yesterday came minutes after Comcastsaid it would blend its media assets with GE’s NBC Universal.
Comcast “tried to appease some of its shareholders byaccelerating the stock repurchase plan,” said Pat Becker Jr.,chief investment officer at Becker Capital Management inPortland, Oregon, which had held about 1.4 million shares as ofSept. 30, according to data compiled by Bloomberg.
Unconvinced of Roberts’s dedication to shareholders, Beckerhas since sold his firm’s entire stake in Comcast.
“Mr. Roberts was looking to build an empire and we justdidn’t want to be a part of that.”
Pricey Deal?
The dividend news sent Philadelphia-based Comcast higheryesterday. Today, the stock rose 22 cents to $16.13 in NasdaqStock Market trading at 4 p.m. New York time. The shares havedropped 4.4 percent this year, after declining a total of40 percent in the previous two years.
The deal with GE gives Comcast the USA, CNBC, MSNBC andBravo cable channels, NBC’s broadcast networks and stations, afilm studio, and amusement parks.
Comcast’s stake in New York-based NBC Universal was moreexpensive than expected and dilutes shareholder equity, said TomEagan, an analyst at Collins Stewart LLC in New York. He saidthat’s because NBC Universal’s cash flow was less thananticipated.
The deal prices NBC Universal’s assets at about 6.1 timesearnings before interest, taxes, depreciation and amortization,Eagan calculated. He anticipated 5.7 times Ebitda.
Under terms of the transaction, GE can force the venture tobuy half of its stake after 3 1/2 years, and the remainingownership after seven. Eagan said that cost also concerns him.
‘No Confidence’
Some investors may view the deal as a “vote of noconfidence” in Comcast’s distribution business, as the companycould have reinvested in itself at a lower multiple than buyingNBC Universal’s varied assets, said Craig Moffett, an analyst atSanford C. Bernstein in New York.
Comcast is “throwing a bone” to shareholders with thedividend increase, Moffett said in an interview on BloombergRadio. “This isn’t a deal about cost cutting or cost synergiesin a traditional type of intra-industry merger. This is moreabout creating new revenue opportunities.”
Roberts, 50, hailed the deal as a way to enhance anddiversify Comcast’s holdings as it faces mounting competitionfrom phone and satellite companies and free online video.
“There is more of an upside than downside in NBC,”Roberts said yesterday on a conference call with investors.
‘Reasonable’ Price
The cable company entered the venture at a time when NBCUniversal is struggling with ad sales in many of its businesses,declining DVD rentals and a lagging TV network.
Comcast is buying “at or near the bottom of this economiccycle,” and NBC Universal is likely to recover with theeconomy, Roberts said.
Glenn Greenberg, an activist investor who called forRoberts’s ouster last year after blaming him for poor decisionsand a sagging stock price, has had a change of heart.
“I am happy about the structure of the deal and feel theprice was reasonable,” said Greenberg, co-founder of ChieftainCapital Management, a New York-based investment firm with about$3 billion in assets. “The track record of the cable channels isimpressive and certainly merits a higher multiple thandistribution assets.”
To contact the reporters on this story:Kelly Riddell in Washington at kriddell1@bloomberg.net
Last Updated: December 4, 2009 16:09 ESTSource: Bloomberg
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