The merger and acquisition news flow this week has been dominated by Comcast Corp. (NASDAQ: CMCSA) jumping in line to acquire Sky in the United Kingdom.It has offered a whopping$31 billion in equity value to acquire Sky. This news has created a big stir in the world of media and communications, but there is another risk that perhaps this could putComcastin a less attractive safety position.
The proposal was an all-cash offer, and it is expected to take Comcast’s international share of total revenues to about 25% from about 9% now. While 24/7 Wall St. covered this in detail, the concern is that perhaps Comcast may become an overleveraged company if it completes this acquisition.
According to a report from S&P late on Wednesday, Comcast’s A- corporate credit ratingwas placed on CreditWatch with negative implications pending clarity of this transaction. The citation for the negative credit view was the potential for a sustained higher leverage. A potential bidding war also could lead to a higher purchase price, and that would no longer support S&P’s current credit rating.
S&P sees a high chance that Fox will increase its bid for Sky. If Comcast successfully bids, then S&P will evaluate its current three-times threshold for the rating.
While the S&P notecame after some concerns already had been made by outside firms, the reality is that Wall Street has viewed this potential Sky acquisition offer in a range varying from confusion to outright disapproval. That confusion was demonstrated by a gain of 33 cents to $36.54 on Thursday morning, but Comcast shares were down 7.3% at $36.66 on Tuesday after news of this deal broke.
Investors should consider that each 1% drop in Comcast shares is big money now. After all, its market cap is $170 billion and that is a massive number,evenafter the big post-announcement drop.
As far as Comcast’s balance sheet, the company’s total liabilities as of December 31, 2017, were $118.34 billion. Of that amount, $59.4 billion was in long-term debt, $24.25 billion was in deferred taxes and current liabilities were $21.56 billion.Comcast also generated $84.5 billion in 2017 revenues and net income was $22.7 billion. The company paid out almost $3 billion in dividends in 2017, as well as $3 billion in interest payments.
Comcast has a 52-week trading range of $34.78 to $44.00 and a consensus analyst price target from Thomson Reuters of $49.08.
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