Comcast on Monday announced plans for a company split, whereby its NBCUniversal media and entertainment operations will be spun out from the Comcast connectivity business, resulting in two standalone publicly traded entities.
It follows Comcast’s earlier move to spin out traditional linear cable networks into the standalone Versant entity.
Post-split, the NBCU business will be led by current Comcast chief executive Mike Cavanagh as CEO and include the NBCU theme parks division, Universal film and TV studios, NBC and Telemundo networks, Peacock, Bravo and the European media business Sky.
Comcast’s former Chief Financial Officer Michael Angelakis will become the CEO of Comcast following the separation, leading the company’s residential and business broadband, wireless and entertainment connectivity services.
Comcast expects to finalize the tax-free spin-off of the media businesses in approximately one year, with existing Comcast shareholders owning shares in both entities following completion.
By uncoupling the media businesses from the broadband, TV and mobile connectivity businesses, Comcast said it aims to better position each entity to pursue their own strategic priorities, invest for growth and create long-term shareholder value in the face of continued competition and changes in technology and consumer behaviors.
“Both companies begin this next chapter from positions of strength. Comcast will continue to build on its leadership in connectivity, while NBCUniversal, together with Sky, will have the scale, brands, content and financial resources to compete as a premier global media and entertainment company,” said Cavanagh in a statement. “Each organization will continue to be led by a management team with deep industry experience that will benefit from focused strategic priorities and the ability to pursue opportunities most relevant to their businesses. I’m personally thrilled to continue leading NBCUniversal into the future. With our iconic brands and theme parks, leading franchises and incredible creative talent, we are well-positioned for long-term value creation.”
It’s a change in position for the company, which previously sought to operate NBCU and Comcast as a combined company.
“Where we previously believed that scale and the diversification benefits warranted operating these businesses as one company, we’ve now simply changed our mind about that,” said Cavanagh on Monday. “We’ve now concluded that future success for each of our businesses will depend on focus, speed, and strategic flexibility that this separation will unlock.”
However, analysts at LightShed Partners led by Walt Piecyk believe the move is more about “financial engineering” in order to address Comcast’s poor stock performance trajectory and set the NBCU company up for future acquisitions.
LightShed sees Sony as potential target for separated NBCU
And while LightShed analysts led by Richard Greenfield cited investor hopes that the planned separation results in NBCU being sold while it’s still in process (like what happened to WBD via Paramount during its own earlier planned spin-off), the firm see the split from Comcast enabling M&A in which NBCU is the probable suitor rather than seller.
In a Monday post, the analysts shared perspective on reasons for the planned separation as Comcast increasingly recognized NBCU was subscale.
“As we saw with the attempted acquisition of WBD’s studio and streaming assets through a proposed NBCU spin and the in-process Sky acquisition of ITV’s media assets, Comcast wants to increase NBCU’s scale, not sell/exit the business. Comcast was effectively handcuffed by its low-multiple stock price,” wrote Greenfield.
“Bottom line: being inside Comcast has not only hurt the valuation of NBCU, it has limited its strategic flexibility to scale,” he continued.
In looking to scale, LightShed laid out potential targets for NBCU, where analysts pegged Sony Entertainment as one of the most compelling.
With Sony, the analysts said combining studios with NBCU “would bring tremendous efficiencies” similar to WBD-Paramount and noted the target has shown “real interest” in growing its own entertainment scale.
“Disney bought Fox, Paramount is buying Warner Bros, and NBC Universal and Sony would be the next logical transaction. Owning less of more could be a compelling transaction for Sony,” wrote the analysts.
Roblox is another potential target, where Greenfield believes child safety challenges with the platform that would make it difficult for Disney as a buyer, aren’t as much of an issue for NBCU.
“Roblox would give NBCU an inside look at what UGC content is bubbling up to fuel content creation, as well as a far more digital-first narrative, similar to what Fox is trying to accomplish with the Roku acquisition,” wrote Greenfield.
Potential acquisition targets that the firm doesn’t think are likely to be pursued by a spun-out NBCU include Nintendo, Lionsgate, AMC Networks, Versant and Starz.
And although the firm noted investors can hope for an acquisition of NBCU, it doesn’t see that playing out and believes all major potential buyers including Netflix, Disney, Paramount, Amazon or Apple “are unlikely to make a bid for all or part of NBC Universal.”