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Comcast to Buy Remaining Stake in Universal Studios Japan

Zacks Equity Research

Leading cable MSO (multi service operator) and media and entertainment firm Comcast Corp. CMCSA is aiming to augment its presence in international markets, especially in Japan and elsewhere in Asia through mergers and acquisitions.

Comcast announced that its NBC Universal division is set to acquire the remaining 49% stake in Osaka-based Universal Studios Japan (USJ), for $2.3 billion (254.8 billion yen)from its current partners – Goldman Sachs Group Inc., MBK Partners Ltd. and Owl Creek Asset Management. Following this deal, Comcast will gain complete ownership of Universal Studios Japan, expanding its biggest overseas investment. In Sep 2015, Comcast’s NBC Universal division had acquired 51% stake in Universal Studios Japan for $1.5 billion.

The $2.3 billion deal also includes an enterprise value of $7.4 billion (840 billion yen), including the assumption of Universal Studios Japan’s net debt. The transaction is expected to close before the end of Apr 2017.

Theme Park Business in Focus

Comcast has been focusing on its theme park business for growth of late, investing billions of dollars. Post the acquisition of the NBC Universal division of General Electric Co. GE, Comcast gained ownership of Universal theme parks. Within the U.S., NBC Universal operates theme parks in Orlando, Florida and California. Moreover, Universal Parks & Resorts’ deal with a Chinese state-owned consortium – Beijing Shouhuan Cultural Tourism Investment Co. Ltd. – to build a Hollywood theme park in Beijing bodes well.

The company’s deal with Nintendo Co. Ltd.– the leading creator of interactive entertainment and home video game systems in the world such as Nintendo 64 and Game Boy marks another business prospect. The deal aims to launch themed areas based on Nintendo’s video games at three of the cable MSO’s (multi serice operator) four Universal Studios parks.

Notably, over the last three to four years, the theme park business has reaped significant results for Comcast. In the recently reported fourth-quarter 2016, total revenue of $8,451 million displayed a 13% year-over-year increase. Operating cash flow was $1,770 million, exhibiting a rise of 14% year over year. Universal Theme Parks have gained popularity from the launch of Harry Potter and Transformers movies.

The latest acquisition will not only help Comcast to expand the theme park business but will  also enable the company to capitalise on the growing opportunities in the emerging markets of Japan and Asia. This deal also reflects Comcast’s confidence in the future growth of Universal Studios Japan, as well as in the Asian market. Comcast is also planning to build a theme park in Beijing and has licensed a theme park in Singapore.

The theme park business is gradually becoming intensely competitive. While The Walt Disney Co. DIS is a leading competitor in this space, Twenty-First Century FOX Inc. FOX is gearing up to enter the market next year. In addition, smaller players like Cedar Fair L.P. and Six Flags Entertainment Corp. are also in the fray. Therefore, large investments in the theme park business are likely to help Comcast gain a competitive edge.

Comcast currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past six months, shares of Comcast gained 13.12% while the Zacks-categorized Cable Television industry witnessed a growth of 12.52%.

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