“Think of what we could do together” is a touching line at the denouement of Wicked: Part 1, the movie currently raking it in at the box office for Comcast Corp.’s Universal Pictures. Outside Oz, Comcast reckons togetherness is actually limiting its freedom and so plans to cast off a bunch of its cable television channels. Having made the decision, the media giant should be wary of being diverted by suitors seeking to pre-empt the split.
The idea is to carve out franchises including USA Network, MSNBC and CNBC into a new entity. This could be worth around $15 billion, according to Bloomberg Intelligence. That compares with Comcast’s roughly $260 billion enterprise value.
For shareholders, the benefits are as speculative as they are in any spinoff. One justification is that two separate companies may command higher stock-market valuations than what’s embedded within the current Comcast stock price. Investors should value the core studio, streaming and theme-park businesses at a higher multiple of profit than the mature television business that is losing audience to streaming rivals.
Yet markets might not fully recognize the growth potential until Comcast is shorn of cable. Meanwhile, the cash-generative spinoff could attract so-called income investors who care more about dividends than growth. Theoretical, but possible.
Another plus is that the cable spinoff might be better able to cut costs through consolidation — the oft-touted solution to cable television’s problems. The new company will have its own C-suite, incentivized to make the best of a weak hand, and its own stock with which to make acquisitions.
True, the spinoff won’t have anything like the same resources as Comcast. But that’s academic. If Comcast tried to double down on cable, its stockholders might well revolt. Analysts at Barclays Plc highlight the potential to do a deal with Warner Bros Discovery Inc., a combination that would bring movie franchises to enhance Comcast’s theme-park business as well as efficiency gains in cable television. Comcast could do such a transaction in its current corporate form, and then spin off the enlarged cable unit. So there are many options — but they involve a cable exit in some way.
