Comcast At&t Merger

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Although the future of AT&T Comcast is potentially impressive, there are still critical issues Comcast is facing. Firstly, AT&T Broadband’s EBITDA is lower than the industry average and Comcast’s cash flow is above the industry average. And the problem is how Comcast can quickly increase AT&T Broadband‘s profit margins. The new company also needs to build up a management team in order to recover AT&T’s bad profit margins as well as to improve the quality of services. Moreover, Robert, the CEO of Comcast, worries that maintaining their company culture in the new company is the most important issue Comcast facing. Many mergers may not be able to get stakeholders’ understanding and fail to maintain their employees’ motivation. Several surveys have proved that culture unsuitability between two companies is a critical cause of merger failure. Culture would have a significant influence on people’s beliefs and actions. Furthermore, culture is long-standing and difficult to change in short time.

This merger will downgrade Comcast’s investment grade rating for the next several years ahead. This will be based on factors such as Comcast will face a significant challenge in integrating a cable operator, AT&T Broadband, that is over one-and-one half times its own size, has been experiencing significant subscriber erosion, has the lowest margins in the industry, and requires significant network upgrades. Based on the above factors, the bonds of Comcast should be sold.

Will this acquisition improve or reduce Comcast’s credit quality? Does the new company merit an investment-grade rating? Provide supporting factors for your recommendation.

4. Based on your assessment of the direction of Comcast’s credit quality, should your firm hold or sell the bonds?