Comcast Breaks Itself in Two, and the Conglomerate Discount Finally Gets Its Catalyst

For most of the past two years, the bull case on Comcast came down to a single frustrating sentence: the assets are worth more than the share price implies, but nothing forces the market to recognize it. On June 29, management supplied the forcing function. Comcast announced its intention to separate into two independent publicly traded companies through a tax-free spin-off of NBCUniversal and Sky, expected to be completed in approximately one year. The stock did what a coiled spring does when released: shares jumped $4.85, or 21%, to $28.02 in premarket trading from a prior close of $23.17 — a level that sat about 5% above the $22.13 fifty-two-week low and roughly 33% under the $34.34 high.

This is the second act of a corporate dismantling. In January, Comcast completed the Versant spin, which carved out the weakest linear cable networks — CNBC, the channel formerly known as MSNBC, USA, Golf Channel and the rest — into a standalone public company. This move reverses the narrower strategy announced last year to spin off only the cable television networks, going much further: the entire media-and-experiences engine leaves the building. What remains under the Comcast name is a pure connectivity company.

What you are actually buying after the split

Investors now have to underwrite two very different businesses instead of one muddled conglomerate. The standalone media business under the NBCUniversal brand will include the Universal theme parks and networks including NBC and Sky, while the assets remaining under the Comcast name will include Xfinity, Xfinity Wireless, and Comcast Business. More...