Paper Chase: Merger Mania
Comcast’s merger mania looks good at home and on Wall Street
Merger Mania
Merger and acquisition activity is up 60% this year as there has been 603 billion dollars in deals.
Congress has promised to hold hearings on AT&T which has a proposed 48.6 billion dollar deal to merge with Directv. This is months after Comcast merged with Time Warner Cable for 45 billion dollars.
Scale Matters
Comcast is going to be in 24 of the top 25 and 40 of the top 50 markets. They have gone into the small and medium sized enterprise (SME) business which will allow them to directly go after telecommunications companies allowing them to get bigger.
Comcast will expand their wireless, mobile video, and advertising space and will need to decide if they are going to go for national advertising dollars for targeted advertising is the future in my opinion. Comcast also rolled out electronic sell through media. So far, studios have loved the impact on their television and film products. Comcast is using content in many different ways with the goal of reaching the most consumers with the best product offered across multiple platforms.
Bow Down
The name of the game is being the biggest and best positioned in internet, tv, broadband, and wireless. Comcast wants to have the consumer for their suite of products.
They were innovative in changing television through their XFinity platform, with it’s search and recommendation engine, which is popular here in New York. Comcast now has a significant presence in the biggest markets at a time when people are watching 40 percent more channels. The Nielsen average is 5.5 hours while the Comcast XFinity average is 7.5 hours. We are seeing that people are continuing to watch from 10-11 pm, but people are taking devices to bed as we see more usage going from television to devices.
Higher Bills?
These proposed mergers will come with conditions that may actually help alleviate costs for the consumer. Programming costs have been growing double digits over the last 10 years. Costs can not increase at that rate and this deal may slow down biggest cost which is programming.
Cable
We are downloading, watching, renting, and owning more media now than ever. People are watching many more things in many different ways. Big companies with the best quality content are now using that content in many different ways and have thus become more valuable. The digital electronic sell through platform has higher margins than traditional cable though not without risks. They are now a direct competitor to Itunes. Itunes had 10 billion dollars of revenue before Comcast and others came along.
What I’m Doing
Typically with these mega mergers, companies go into what is known as “deal limbo”. The closer to approval and conditions we get, the stock won’t collapse but a lid is put on its value. You want to own Comcast after this merger, once Time Warner Cable shareholders vote. Comcast will significantly increase it’s buyback as I expect the cost and revenue synergies to be significant.
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