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Activist shareholder stirs up US cable business

Comcast Corp.'s stock performance amid the coronavirus pandemic is a tale of two diverging business segments, a dilemma that has attracted the attention of activist investor Trian Fund Management LP.

The hedge fund, which describes itself as "a highly engaged shareowner," bought up 20 million shares of Comcast, the largest U.S. cable operator. A Trian spokesperson said it believes Comcast's stock is undervalued.

"We have recently begun what we believe are constructive discussions with Comcast's management team," the Trian spokesperson said in an emailed statement. Comcast declined to comment on the matter.

While it remains unclear what Trian hopes to accomplish with its Comcast discussions, analysts say it is clear that Comcast's NBCUniversal Media LLC unit is struggling amid the pandemic, and its struggles are weighing down the performance of the parent company's stock. Even so, Comcast CEO Brian Roberts' voting power make Comcast a difficult target for shareholder activists hoping to push change, they noted.

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The divide between Comcast's cable communications segments and its media business was especially evident during the June quarter. While cable communications revenue remained relatively flat year over year at $14.43 billion, buoyed by strong broadband subscriber growth, revenues at NBCUniversal Media fell 25.4% year over year to $6.12 billion as the coronavirus pandemic depressed advertising spending, shuttered theaters and forced the closure of the Universal Studios theme parks.

NBCUniversal CEO Jeff Shell plans to significantly trim the company's cable network business, cutting jobs and perhaps entire networks, The Wall Street Journal reported Sept. 22. Networks E! (US), Syfy (US) and Oxygen (US) may be on the chopping block, at least in terms of linear distribution, the Journal reported, citing people familiar with the situation.

"Trian tends to focus on assets where there is a potential to unlock value through a break-up or divestiture," said New Street Research analyst Jonathan Chaplin in a note. "We have argued value would be unlocked by splitting Comcast Cable and NBCU," he added.

Macquarie analyst Tim Nollen said he sees Trian's interest in Comcast as being driven by "a combination of an arguably undervalued broadband business, an eventual recovery in the consumer cyclical ad and parks and film businesses, and perhaps an interest in shaking up what are different cable, NBCU and Sky [Ltd.] businesses."

Nollen said while a COVID-19 recovery will eventually be positive for NBCU's theme park and film businesses, "a general dissatisfaction with Sky among investors," could give Trian an opening to push for change. Quarterly revenue for Comcast's U.K. satellite TV business fell 15.5% to $4.08 billion amid lower direct-to-consumer revenue, advertising revenue and content revenue.

Privotal Research Group Principal and analyst Jeffrey Wlodarczak said while there is dissatisfaction with Sky, the U.K. satellite TV business represents a small slice of Comcast's business and is unlikely to drive significant momentum in the parent company's shares. He also noted that Sky is smaller than NBCU.

"There are obvious things that Comcast could do that would move the stock substantially," Wlodarczak said, such as raising debt and using the proceeds to buy back its shares. Wlodarczak also proposed spinning out NBCU or creating separate tracking stocks for NBCU and the cable communications segments.

"Cable is a fabulous business right now, and it is not reflected in the [Comcast] valuation," he said.

Shares of Charter Communications Inc., the second-largest U.S. cable operator behind Comcast, were up more than 30% year-to-date as of Sept. 22. By contrast, shares of Comcast were up less than 3%, in line with the S&P 500. Notably, Comcast's year-to-date gain included a recent boost following news about Trian's investment in the company. As of Sept. 21, just prior to that news, shares in Comcast were in the red for the year to date, down 0.6%.

But Wlodarczak noted it will be difficult if not impossible to force change at Comcast unless its CEO, who controls 100% of the company's class B super-voting shares, agrees. Those shares give Roberts 33% voting power at the company, he noted.

"Hard to imagine they [Trian] can get Comcast to do much," Wlodarczak said.