Comcast's talks with NBC Universal get thumbs down

 NEW YORK (Reuters) - Comcast Corp shareholders may be justified in thinking they're watching the repeat of a show they didn't like much the first time around.

The top U.S. cable service provider, blasted five years ago for making a $54 billion bid for Walt Disney Co, is again in talks to buy a major media conglomerate. This time, negotiations center on a majority stake in General Electric Co's NBC Universal, sources familiar with the matter said.
The news sent Comcast shares tumbling 7 percent on Thursday, dredging up fears that Chief Executive Brian Roberts is making a risky bet on a film and television business that has been hard hit by the recession and is going through seismic changes in the digital age.

"People are scared, they don't trust Brian, he's seen as an empire builder," said Glenn Greenberg of Chieftain Capital Management, which owns 29 million Comcast shares.

Greenberg pointed to Comcast's past acquisitions such as Adelphia in 2005 and AT&T Broadband in 2002 as examples of management paying too much.

According to the current talks, the sources said, Comcast would pay between $4 billion and $7 billion in cash and contribute its cable programing assets to take 51 percent of a new NBC Universal that is jointly owned with GE.

"The problem is that they have low credibility for overpaying for assets," said Greenberg.
Worries that Comcast has been hoarding cash to spend on a big media company have weighed on its shares, pushing valuations close to historical lows over the summer.

"Investors have long pressed Comcast for an aggressive return of cash to shareholders," said Craig Moffett, analyst at Bernstein Research. "An acquisition of a major content studio, even if consummated at an attractive price, is most decidedly not what Comcast investors had in mind."
To be fair, Comcast has been upfront with Wall Street and investors about its interest in acquiring more cable programing assets.

The talks with GE do not involve Comcast issuing any debt or equity, and do not involve boatloads of cash, as Chief Operating Officer Stephen Burke promised last month. "I don't think that means doing a big $50 billion acquisition," he told investors when discussing Comcast's content plans.

NBC Universal is 80 percent owned by GE and 20 percent owned by Vivendi, which is widely expected to exercise an option to sell that stake this year.

The deal under discussion, according to the sources, would value Comcast's cable networks like E!, Golf Channel and Versus at up to $7 billion. GE would own 49 percent of the new company -- which would hold all of NBC Universal's film, television and theme park businesses -- though the idea is for Comcast to increase its stake over time.

"It's a more attractive structure than initially thought," said Chris Marangi, analyst for Gabelli & Co, a long-term holder of Comcast shares.

"It doesn't require the issuance of new equity and limits the amount of cash used so it's a more manageable transaction," he said, adding that Comcast appears to be getting a relatively good valuation for its cable networks.
Others on Wall Street are yet to be convinced, pointing to debt that the venture will be saddled with as part of the expected deal with GE. Comcast already has $32 billion debt on its books.

Standard & Poor equity analyst Tuna Amobi downgraded Comcast's stock to 'sell' on Thursday, citing what he called "overhang of merger execution risk."

"With $4 billion cash and $32 billion debt, we are wary of significantly higher financial leverage under any deal permutation likely entailing sizable equity dilution," Amobi said.

- Via Reuters