The music won't stop soon in media-telecom merger frenzy

22 June 2018/No Comments
By Nick Dunbar

The last few weeks have seen unprecedented deal activity across the telecoms and media sectors. There was the regulatory approval of AT&T’s $108 billion bid for Time Warner, and the surprise of Comcast’s $65 billion cash offer for Twenty-First Century Fox, alongside its $31 billion bid for Sky.

These and other deals in the sectors will involve considerable new borrowing. If successful, the two Comcast bids alone would increase the amount of investment grade debt in the media sector by 27 per cent.

Let’s consider Comcast first. Disney was the original bidder for the Fox part of the Murdoch empire, and responded this week to the surprise bid with a $71 billion cash and stock counter-offer of its own. Comcast, which is controlled by the Roberts family, is likely to increase its cash offer further.

Even at the end of May, with rumours of the bid swirling round, the average spread on Comcast bonds had increased more than any other investment grade issuer in the media sector. After the bid became official, Moody’s said that it would make Comcast the second most indebted non-financial company (after AT&T).

Understanding the chart

This chart shows the average change in spread for media sector bond issuers in 2018, drawn from 13,000 corporate bonds and 1,800 issuers in the Risky Finance iBoxx database. Use the controls below the chart to change the metric or to look at a different sector.

The full dataset, including individual issuer dashboards, is available to Risky Finance subscribers.

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Yet the amount of spread widening – 50 basis points – was relatively small, even after the bid was announced. It suggests that Comcast CEO Brian Roberts may succeed in his bid, and has considerable headroom to increase it in response to Disney. To understand why, we’ll use the Risky Finance debt repayment tool.

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