- Comcast is splitting its media assets from its core cable business
- Executives framed the separation as a way to give each business more focus, speed and strategic flexibility
- Analysts said the move could unlock shareholder value and revive speculation about future M&A
Comcast is splitting into two separate companies, spinning off its media assets — including NBCUniversal and Sky — while retaining its core cable business. Analysts said the move could unlock "significant value" for the company and reignites speculation around a potential merger between Comcast and Charter Communications.
"There’s no surprise that both the media and telecom landscapes have become increasingly competitive and that pace of change continues ot accelerate. And we simply don’t see these conditions changing anytime soon," Comcast co-CEO Mike Cavanagh said during a call with investors. "So where we previously believed that scale diversification benefits warranted operating these businesses as one company…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."
Comcast CFO Jason Armstrong stressed that the decision to separate the businesses is "not about something we've seen in the quarter...we broadly expect financial and operating metrics to be within expectations."
The separation is expected to be complete in about one year.
Cavanagh, who has served as Comcast's co-CEO alongside longtime chief Brian Roberts since January 1, will lead the new media spin off company. Former Comcast CFO Michael Angelakis will return to the company to become CEO of the retained cable business. It is not entirely clear what role Roberts will hold. The deal press release states only that he will "continue to be actively involved in the leadership of Comcast and NBCUniversal."
Roberts said in a statement the deal will "open up a multitude of new opportunities for each business." He added Angelakis' "deep knowledge of the business and passion for technology – combined with the leadership of Steve Croney, Jason Armstrong and the entire Comcast management team – will serve us well as we continue to take bold actions in today's competitive environment. Our recent momentum is the launchpad to propel our advanced network, substantial customer base, and outstanding products to even greater success."
On the broadband front, Angelakis said on the call that he initially plans to focus on "operational excellence" and innovation around customer experiences.
Analyst take
Indeed, New Street Research's Vikash Harlalka noted that the move should "unlock meaningful value for Comcast shares as it will allow for a revaluation of the two businesses." He added that it also opens the door for more realistic speculation about Comcast's M&A activity.
"We’ve said in the past that separating the 2 businesses is a precursor for Comcast to engage in any kind of M&A, especially in the cable space. In their press release, Comcast outlined that this will allow them to pursue opportunities relevant to their businesses. We think this means Comcast will focus on M&A in both the cable and media sectors once the separation is complete," he wrote.
Earlier this year, New Street Research floated the idea that a merger between Comcast and Charter would make the most sense among the options available. "The industrial logic and synergies would be transformative for both companies," Harlalka wrote at the time.
But Roberts appeared to throw water on that idea during the call with investors. Asked whether the spin off should be viewed as step toward strategic transactions for either company, Roberts replied: "Absolutely not. This is the right move to put each company in the strongest position to create value, fully monetize its assets and aggressively pursue its own organic growth strategies."