At first blush, NBC Universal's $30 billion valuation appears high at a time when traditional media's advertising dollars are being siphoned off by the Web.
But as Wall Street analysts begin to crunch the numbers, there is a growing consensus that Comcast Corp struck a fair price for a controlling stake in NBC Universal, and may even have gotten a good deal from long-time owner General Electric Co.
The two companies announced on Thursday a complicated transaction that will give Comcast 51 percent of a new joint venture that includes NBC Universal, valued at $30 billion, and Comcast's own cable networks, valued at $7.25 billion. GE will own the remaining 49 percent.
As payment for its stake, Comcast will contribute $6.5 billion in cash and its cable networks.
Comcast said the deal values the joint venture at 10 times forecast 2010 operating cash flow of $3 billion. That is high compared to publicly traded media conglomerates.
Walt Disney Co, which like NBC Universal owns a broadcast TV network, cable channels, a Hollywood studio and theme parks, trades at nearly 9 times forecast 2010 cash flow. Time Warner Inc, News Corp and Viacom Inc trade at a ratio of 6 to 7.
This valuation remains meaningfully above market, said Bernstein Research analyst Craig Moffett.
Yet analysts also point to a rally this year in shares of pure cable networks like Discovery Communications Inc and Scripps Networks Interactive Inc, which have outperformed the broader media sector because they are less dependent on advertising revenue.
Discovery and Scripps trade at between 11 and 12 times cash flow. Scripps also sealed a deal to buy Travel Channel for $975 million, or 12 times cash flow.
According to Comcast, the NBC Universal venture's cable networks will generate $2.19 billion in operating cash flow in 2009. At a multiple of say 11.5 times, that would put NBCU's collection of cable networks including USA, Bravo, SyFy and CNBC at $25.2 billion.
This means Comcast is getting the NBC broadcast network, its affiliate stations, theme parks and Universal Pictures for less than $5 billion.
There are many aspects of this deal that are favorable for Comcast, said David Joyce, analyst at Miller Tabak pointing out the immediate accretion to free cash flow under the terms of the deal.
Comcast will also get a $1.5 billion tax benefit for the deal, Chief Financial Officer Michael Angelakis told analysts in a presentation on Thursday.
Comcast's shares rose 6.5 percent on Thursday, in part because it raised its dividend by 40 percent but also because of an improved perception of the price it was going to pay for NBCU after weeks of news reports.
The stock rose another 1.4 percent on Friday, after having fallen 11 percent since news of the NBC Universal deal talks broke in September.
There was a relief rally, there was the perception that Comcast would overpay, said Kaufman Bros analyst Todd Mitchell.
Some Comcast shareholders had feared Comcast Chief Executive Brian Roberts would go after NBC Universal at any cost, after he had tried and failed to buy Disney five years ago for $54 billion in stock.
Values are generally lower today for all media properties, said Scott Singer, an investment banker at Bank Street. Regardless of the acquisition currency being used by Comcast, the cost of capital is higher today than it was a few years ago.
After adjusting for debt, Comcast said the new company will have an initial equity value of $28.2 billion.
(Reporting by Yinka Adegoke; Editing by Tiffany Wu and Richard Chang)