Analyst: Comcast Could Own 100% of NBCU by 2014

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Comcast could buy out General Electric Co.'s 49% interest in the NBC Universal joint venture for $17 billion in the next four years, according to Citigroup media analyst Jason Bazinet, a scenario that the analyst believes would not only make sense for the Philadelphia MSO, but would be affordable.

According to the JV agreement, Comcast would have the right to buy out a portion of GE's stake in the joint venture after 3.5 years and the rest seven years after the deal closes. But in a 20-page research note issued late Wednesday, Bazinet wrote that it might make sense for Comcast to buy out GE early.

GE would have to request that Comcast buy out its interest, which Bazinet is assuming it will do. The analyst estimated that the partnership would increase revenue from $18 billion in 2010 to $20 billion in 2014 and cash flow would rise from $3.3 billion to about $4.2 billion in the same time frame. Free cash flow is expected to increase from $1.6 billion to $2.5 billion in 2014.

Bazinet estimates that Comcast would have to shell out about $17 billion to buy out GE's 49% stake, representing a 20% premium to the value of its interest in the JV. That, the analyst said, could be funded partly with Comcast cash on hand -- estimated to be about $11.6 billion by 2014 -- and $11.5 billion in debt that could be tacked on to the partnership.

Bazinet wrote that NBCU should be debt free by 2014, which would enable Comcast to heap more debt on the partnership and still maintain a 2.75 times leverage ratio.

"All told, this suggests there is about $23 billion of available funds. In effect, this suggests Comcast would have about $6 billion more in available funds that the 49% stake would cost," Bazinet wrote.

While that scenario also suggest that the partnership encounters no hiccups in the next four years, Bazinet said that buying out GE makes sense even in a less optimistic environment.

Bazinet estimated that in a bear scenario -- where revenue rises at a slower pace (from $16.5 billion in 2010 to $16.8 billion in 2014), cash flow decreases from $2.9 billion to $2.8 billion and free cash flow stays flat at $1.4 billion -- Comcast would need just $12 billion to buy out GE's interest. That could again be funded through cash generated by the cable business (about $11.6 billion) and $4.3 billion in additional debt from NBCU (still maintaining 2.75 times leverage), giving the cable giant $16 billion to fund a buyout.

"...To our way of thinking, there is ample financial capacity to complete the transaction even under the bear case," Bazinet wrote.

Bazinet also attempted to clear up some confusion surrounding the financial terms of the deal.

First, he wrote the MSO's cash outlay for the deal would be $7.1 billion, not the $6.5 billion that Comcast said it would part with in its investor presentation about the deal.

The difference is basically Comcast's cut of the cash flow generated by the partnership.

Between Dec. 3, 2009 (the day the deal was announced), and when the deal closes, Comcast is entitled to 51% of the cash flow generated by NBCU, or about $612 million, Bazinet wrote.

The $6.5 billion is the net cash outlay ($7.1 billion minus $612 million), the analyst added.

In the deal, GE also agreed to buy advertising from NBCU -- $59 million of gross ads in the first five years after the closing and $50 million connected to the 2012 Olympic Games.

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