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If you hat a company, there's a chance that you might want to buy it



July 13, 2010 – Comments (2) | RELATED TICKERS: CMCSA


Any industry that can piss me off and yet continue to get me to send them checks every month like the cable industry has been doing for years must be doing something right.  People always talk about how cable television is going to be replaced by Internet programming, etc...  For some people it will, but most of us will continue to send our local monopoly cable company month after month after month.  

I came across a great article on Comcast (CMCSA) in Forbes this morning.  The piece talks about why Oakmark's famous mutual fund manager Bill Nygren likes Comcast at this level.
Nygren makes a compelling argument for why the NBC acquisition was a home run for the company.  Im' not big on content providers like NBC but the way Nygren makes it sound Comcast is almost getting the company for free. 

5 reasons why Bill Nygren likes the Comcast deal 

1. Comcast got NBC Unversal cheap

Comcast agreed in December to buy NBC Universal for $30 billion. But in reality, Nygren says, Comcast is paying only $6.5 billion in cash plus its cable-programming assets. NBC Universal will be placed in a joint venture -- 51% owned by Comcast, 49% by GE -- that Comcast will manage. Comcast has to pay GE only 25% of any increase in the joint venture's value during its seven-year duration. Notes Nygren: "Comcast won't have to use its own capital to make the payments -- it'll use cash flow generated by the joint venture. Effectively, it's using GE's money to pay GE. So Comcast put up $6.5 billion today for 100% ownership seven years from now..."

NBC is producing strong cash flow out of its cable networks -- USA Network, Bravo, MSNBC, CNBC, and others." As the deal awaits antitrust approval, Nygren thinks shares are still priced right: "At the current price [about $18], I consider Comcast to be one of our most attractive holdings."

As I mentioned, people always talk about how cable television is going to be replaced by Internet programming, but even if one does turn off their cable television and begin watching shows on their computer, where do you think that the bandwidth that they're using comes from?  ...The cable company.  Sure one can use cellular service, but that's not as fast, not as reliable, and not free anyhow.

For a while, people were afraid that telephone company television, such as Verizon's FiOS would give cable a run for its money.  Nope, VZ has totally botched that one.  It would have been better off just giving investors their money back than throwing it away on FiOS.

Comcast is cheap, it pays a dividend, and it bought NBC for practically nothing.  I am adding CMCSA to my CAPS portfolio today at around $18.50. 


2 Comments – Post Your Own

#1) On July 13, 2010 at 10:42 AM, TMFDeej (97.44) wrote:

HA, nice typo in the title.  Comcast has not diversified into making hats.  That's what I get for blogging at 5:30 in the morning after my sick son got me up at 4.  Need more coffee.


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#2) On July 15, 2010 at 3:26 PM, leohaas (30.13) wrote:

Disagree. Not with the contention that Comcast got NBC cheap. Or that you should buy a company you hate but you keep on sending checks to them. More with you sending them checks.

I stopped doing that about a decade ago. Their customer service was horrible. And as far as I hear from people who have cable, it still is.

If FiOS were available in my area, I would have gotten it. It is superior to cable, satellite, and wireless. Unfortunately, VZ is not planning to provide my neighborhood with FiOS. I'm not so sure they are throwing their money away if they can keep their customers.

So I now have DirecTV. Works fine and has good service. For my internet, I use DSL. Fast enough for what I need to do. Wireless for internet is still way slow, and way expensive.

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