The Week in Breakingviews: Cleaving the colossus
BREAKINGVIEWS-The Week in Breakingviews: Cleaving the colossus The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Peter Thal Larsen
LONDON, July 5 (Reuters Breakingviews) - Welcome back! One of the dubious benefits of covering business and finance for a long time is watching corporate empires take shape - and then being dismembered. In this week’s edition, some observations on the breakup of media giant Comcast CMCSA.O. Tell me which big company you think is next. And sign up here to get this newsletter in your inbox every weekend.
OPENING LINE
“Look no further than the World Humanoid Robot Games in Beijing next month for evidence of the yawning gap between hype and reality. Last year's inaugural tournament, which attracted 500 androids from 16 countries, featured athletic competitions that evoked drunks stumbling into each other.”
Read more: China’s robot quest triggers system overload
FIVE THINGS I LEARNED FROM BREAKINGVIEWS THIS WEEK
The cost of shipping crude oil from the Middle East to China is three times higher than before the Iran war. (Better measure than Brent)
Investment banks are not planning to shrink recruitment of junior analysts. (AI apocalypse averted)
Owner-occupiers account for over a quarter of this year’s purchases of UK offices. (Barclays is one)
India’s National Stock Exchange executes options trades worth $1.5 trillion a year. (Officials are cracking down)
Booze giant Brown-Forman has started offering blackberry-flavoured Jack Daniel’s. (Time to sell?)
SPLITTING THE CABLE
For most of my career as a financial journalist, Brian Roberts has been buying things. Over the past two-and-a-half decades the Comcast boss has initiated a string of transactions that transformed the Philadelphia-based cable TV operator into a media and communications colossus. So Comcast’s decision this week to split itself in half is a big turning point - and an opportunity to think about what has changed.
Roberts put down his first major marker as a dealmaker in 2001 when, alongside his father Ralph, Comcast launched a bold offer for AT&T’s T.N cable operations. The deal was announced on a Sunday afternoon, and I vividly remember interviewing Roberts and his advisers from a payphone at a service station while driving back from a weekend away.
Three years later, Roberts attempted a $66 billion hostile bid for Walt Disney DIS.N. Though that offer failed, it signalled his ambition to expand into the entertainment business. This was realised in 2009 when Comcast bought a majority stake in NBC Universal from General Electric GE.N, another once-acquisitive giant then in the process of breaking itself up. The logic was that NBC’s movies and TV shows would benefit from Comcast’s broadband distribution. For about a decade, it worked.
Roberts did not stop there, though. An attempt to buy Time Warner Cable fell foul of antitrust regulators. A $65 billion offer for parts of Rupert Murdoch’s Twenty-First Century Fox failed when rival Disney paid more. Instead, Roberts snapped up UK broadcaster Sky for a staggering $40 billion after a dramatic 2019 weekend shoot-out with Murdoch.
Since then, however, the deal machine has sputtered. The rise of streaming services like Netflix NFLX.O prompted more consumers to “cut the cord” on their cable service, undermining Comcast’s cash flow while challenging the logic of marrying media content with distribution. The company’s shares, which had comfortably outperformed the S&P 500 Index for many years, started to slide. Over the past five years the total return on Comcast stock - including dividends - is minus 47%. Mike Cavanagh, Comcast’s co-CEO, this week declared that executives had “simply changed our mind” about the benefits of straddling different businesses.
So what happens next? Jennifer Saba calculates that Comcast’s assets are worth nearly $200 billion, meaningfully more than the company’s current $170 billion value, including debt. A separation may enable more transactions: Netflix might be interested in a standalone NBC Universal, while Comcast’s cable operation could join forces with rival Charter Communications CHTR.O. Roberts, who at 67 remains decades younger than moguls like Murdoch, will remain “actively involved”. I suspect there will be more deals.
CHART OF THE WEEK
China’s exports are flooding the planet. The yuan CNY= is undervalued. Many analysts think these two things are related. Hence the push by U.S. policymakers for China to increase the value of its currency. Yet how much would that increase the cost of making things in the People’s Republic? Jon Sindreu crunches the numbers from a new study by the McKinsey Global Institute and concludes: not enough to level the playing field.
THE WEEK IN PODCASTS
True believers in cryptocurrencies think that digital cash does not need a backstop. Central bankers argue this view ignores centuries of painful financial experience. Gaston Gelos of the Bank for International Settlements joined me on The Big View to explain why stablecoins and other forms of electronic money will still need central banks to work smoothly.
Booze makers are struggling with falling sales and shrinking appetites. Distillers like Jack Daniel’s are trying and failing to join forces with other purveyors of alcohol. Jeffrey Goldfarb joined Aimee Donnellan and Jonathan Guilford in the Viewsroom to debate the industry’s long and painful hangover.
PARTING SHOT
The U.S. was built by immigrants. Yet as the nation celebrates declaring its independence 250 years ago, Donald Trump’s administration is engaged in a harsh reversal. Arrivals of newcomers have ebbed and flowed over the years: at almost 15%, the proportion of immigrants in the U.S. population is the same as in 1910, but three times the level in 1970. Gabriel Rubin argues that if the U.S. is to celebrate a successful 500th birthday in 2276, it will have to keep nurturing the same demographic and economic trends.
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(Editing by Aimee Donnellan; Production by Katrina Hamlin )
((For previous columns by the author, Reuters customers can click on LARSEN/peter.thal.larsen@thomsonreuters.com))