Rocket Lab Shakes Up Satellite Communications

**Jon Quast** (0:02)
Breakups, buyouts, and selling stocks, all this and more on today's Motley Fool Hidden Gems Investing.
Welcome to Motley Fool Hidden Gems Investing. I'm Jon Quast, and I'm joined today by Foolish contributors, Matt Frankel and Rachel Warren. Today, we're talking about a shakeup in outer space, as well as taking a listener question about selling stocks. But first, we gotta talk about Comcast, because it's breaking up. Now, in January, it already spun off its TV channels and some internet properties, CNBC, Golf, Rotten Tomatoes. It spun those off into Versant Media Group, ticker symbol VSNT. But now, Comcast is coming back here for round two, announcing it will spin off NBC Universal, which contains a lot more than just the channel NBC.
Now, as I zoom out here, Comcast stocked down about 30% over the past year prior to this announcement. And one announcement here, sending the stock up 20% pre-market, up about 10% now. So the market is giving it roughly $10 to $15 billion more in market cap, just for announcing this move. And that is an absolutely massive swing. Were investors really punishing this stock so much because it was a conglomerate?

**Matt Frankel** (1:22)
Well, yes, the new company will include all the entertainment and broadcasting assets, including the NBC network, as you mentioned, that's still part of it. Telemundo, the Peacock service. It also includes the Universal Film and TV studios, the Universal theme parks, and the Sky European business. So the remaining Comcast will really just be the broadband and wireless services, which is a pretty big business. It has 65 million subscribers. So there are a few reasons why investors might be cheering the news.
As you correctly said, the stock was down about 30 percent over the past year going into this, and with the so-called conglomerate discount hurting it, but not for the reasons that you might think. So NBC Universal could be a lot more valuable as an entertainment content play, especially when it comes to being an acquisition target. That's really the environment we're in right now. So I remember when Warner Brothers Discovery planned to spin off its cable TV and studios business and announced that, and then it became the trigger for a bidding war between Netflix, Paramount, which eventually got it, and a few others.
Today's surge represents investors pricing in a similar outcome here. It remains to be seen if it actually happens, but this could really be the next big consolidation play for the industry. I mean, Amazon and Apple are two examples of companies that could be interested just to name a couple of speculative names off the top of my head, but there are definitely others. Yeah.

**Rachel Warren** (2:44)
I mean, the primary driver of any shareholder value moving forward is the creation of two pure play entities that can be valued independently on their own merits, right? I mean, the remaining Comcast could potentially transform into a leaner, more profitable telecom giant focused on broadband infrastructure and wireless connectivity. That's sort of the bullish thesis there. And obviously, without the financial drag of funding expensive streaming content, then you could see how this new Comcast could redirect free cash flow directly towards share buybacks, dividend hikes, paying down corporate debt. I'll note this is a tax-free spinoff. So current Comcast shareholders will receive shares of the new NBC Universal Company without triggering an immediate tax liability. Comcast, for their part, they're keeping a 19.9 percent massive stake in the new media company and they intend to monetize that over the first year. So still a notable presence where that's concerned.

**Jon Quast** (3:38)
Matt, I want to circle back to you here because it does sound like you're saying that a bigger player might want to acquire NBC Universal once it has spun out and you mentioned Amazon and Apple specifically. Are you being serious here or are you just daydreaming?

**Matt Frankel** (3:53)
I think that's fair to say. There are a lot of these content providers who are leaning into live content. They would love to expand the intellectual property and their streaming services and so on and so on. Now, there are some companies that would be unable to acquire NBC Universal, most likely like Disney as an example. There's a lot of complimentary parts of the business, but they would run into a theme park monopoly problem, I think. They might as well just buy Orlando if that was the case.
But for a company like Amazon, it would make a lot of sense. Think of what they would be getting. They'd be getting the rights to things like NBC's Olympic coverage, and NFL's Sunday Night Football. They're clearly pushing into live content, and the fact that they already own the MGM studios, it could be a nice smart addition to compete with other big streaming providers. Apple has been lagging in the content wars, and has the cash to acquire something like this rather than focusing too much of their attention on building it from scratch.