Comcast Stock Drops Amidst NBCU Takeover Rumors

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Comcast is denying reports that it is close to a deal to buy NBC Universal for a cool $35 billion, speculation that sent its stock down more than 7% ($1.24 per share) in early trading Thursday.

Comcast issued a terse statement Wednesday night after online entertainment blog The Wrap.com reported that the Philadelphia-based MSO was close to inking a $35 billion deal to purchase all of NBCU, including the broadcast network, the Universal movie studio and cable channels USA Network, SyFy and Bravo. According to TheWrap.com, bankers for both Comcast and NBCU met in New York Tuesday to hammer out details.
In a terse statement, Comcast denied the report.
"While we do not normally comment on M&A rumors, the report that Comcast has a deal to purchase NBC Universal is inaccurate," Comcast said in a statement.
NBC Universal spokeswoman Kathy Kelly-Brown declined to comment.
NBC Universal has been in play for weeks, as speculation has mounted concerning what Vivendi, the French utility that owns a 20% stake in NBCU, would do with that interest. Every year between November 15 and the first Friday during the first full week in December, Vivendi has the right to put the interest to NBCU parent General Electric. That right expires in 2016.
Earlier this month at an industry conference, Vivendi CEO Jean-Bernard Levy said that the company was still evaluating what it will do with the stake, adding that an IPO of the interest is a consideration.
While there has been some speculation that GE could sell NBCU outright, the company has said in the past that it is not interested in a sale.
In a memo to NBCU staff to Thursday, NBCU chief Jeff Zucker didn't comment directly on the Comcast rumors, but said that Vivendi has not made its intentions known yet.
"Vivendi has been a superb owner of NBC Universal, along with GE, for more than five years," Zucker said in the memo. "They have not yet made us aware of any final decisions about their future with us; should they choose to exit, there are a number of possible things that could happen. It is our longstanding policy not to comment on rumors, and we have adhered to that policy in connection with these rumors."
Comcast has been in the hunt for content -- at the Bank of America Merrill Lynch conference in September COO Steve Burke said that the company would look at content deals at the right price. But he added that the company would not make a transformative acquisition.
Still, Comcast has made bold content moves in the past -- in 2004 it launched a $66 billion hostile bid for The Walt Disney Co. that was rejected by shareholders. That experience appeared to have soured the MSO on major content deals - it took a major hit to its stock price during the negotiations with Disney.
In a research report Thursday, Sanford Bernstein cable and satellite analyst Craig Moffett wrote that a NBCU deal would appear to have little upside for Comcast, adding that it would likely come with a slew of regulatory conditions that would make a deal unappealing. And as far as acquiring Vivendi's 20% interest in NBCU, Moffett wrote that that "would include all of the regulatory burdens, but none of the benefits of control."
Moffett added that an NBCU deal would also play into investors worst fears that the company would use its significant cash flow to fund acquisitions, rather than redistribute it to shareholders in the form of dividends or share buybacks.
Investors appeared to agree. Comcast stock plunged as low as $15.64 per share (down $1.24 or 7.4%) in early trading Thursday. The stock rebounded slightly in later trading, down 96 cents each (5.7%) to $15.91 per share at 10:45 a.m.

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