On the Hook: Comcast's Bid for AT&T Broadband Is Big Deal for Fund Investors

You might want to pay attention to Comcast's(CMCSK) offer to buy AT&T's(T) Broadband unit and make itself the nation's biggest cable-TV operator. After all, the company is doing it with your money.

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On Sunday, Comcast offered to pay $44.5 billion in stock and assume $13.5 billion in debt for AT&T's sluggish broadband unit, sending the would-be buyer's shares down 7.1% and the former Ma Bell's shares up 11.8% on Monday. The unsolicited (and some say steep) bid, coming after failed negotiations with the sputtering telecom giant, doesn't lack chutzpah, as Comcast is trying to vault over AOL Time Warner(AOL) and into the cable-TV industry's catbird seat.

With a few notable exceptions, the institutional folks like the parameters of the deal and think Comcast can make it work. Main Street investors are intimately involved because stock mutual funds -- including several Janus funds -- have made big bets on Comcast's shares, accounting for a whopping 32% stake in the company.

Here's why: Most stocks typically end up in either growth- or value-oriented stock funds, but thanks to years of solid returns, Comcast has fans in both camps. Growth managers typically focus on the often-pricey shares of companies with outsize earnings growth, while value managers are Wall Street's bargain-hunters. But Comcast, a family-run business with a solid track record for wringing more profits from each subscriber than its competitors, was a holding in a third of all big-cap growth funds and more than 22% of big-cap value funds at the end of May, according to the most recent data from Morningstar.

They Like It, They Really Like It A third of large-cap growth funds owned Comcast at the end of May and the percentage of big-cap value funds owning shares was on the rise
	May 31, 2001	May 31, 2000
Big-Cap Growth Funds	33%	32%
Big-Cap Value Funds	22	9
Source: Morningstar.

It's easy to see why fund managers are smitten. After all, their paychecks are tied to their performance vs. their peers and benchmarks like the S&P 500, and Comcast's shares have helped many stay ahead of both taskmasters. Over the past five years the company's shares are averaging a 39.1% annual gain, which laps the S&P 500 twice and more than triples the gains of the average big-cap growth and value funds, according to Morningstar.

Must-See TV Comcast has helped fund managers stay ahead of the S&P 500

Source: Morningstar. Returns through July 6.

Given the size of their bets on the stock, however, fund managers could sink its shares if they decide the Roberts family is paying too much. The question is: Can Comcast monetize AT&T's 22 million subscribers as well as it has monetized its current 8.5 million customers?

Both a growth manager and a value manager at San Francisco-based Transamerica Investment Management like the deal after huddling on Monday.

"The thing to focus on is the spread in profitability between Comcast and this AT&T asset. Comcast's profit margins are in the low 40s and AT&T's are in the high teens or around 20%. It seems to me they're paying a reasonable price if they can raise [AT&T Broadband's] profitability close to their own. It's not an easy task, but they're capable of doing it," says Dan Prislin, co-manager of the (TPVIX)Transamerica Premier Value fund, which had more than 4% of its money in Comcast shares at the end of May.

Jeff Van Harte, a growth manager whose (TEQUX)Transamerica Premier Equity fund had more than 5% of its money in Comcast, agrees.

"They've done a lot of work on this. They specifically went line item by line item in the conference call, telling you what improvements they think they can make," he says. On Monday, Comcast management told Wall Street it expects it can slash AT&T Broadband's corporate overhead from $500 million to $50 million annually and halve marketing costs, among several cost-cutting plans.

Van Harte says he and Prislin aren't raising or cutting their Comcast positions on Monday's news.

Not everyone is so certain that the Roberts family savvy will make the dear bid a bargain.

"No one denies that Comcast is a superb cable operator; I think they're the best. But I think you've got to call a spade a spade, and they're overpaying," says Todd Bernier, an analyst who covers the company at Morningstar, which doesn't have an underwriting business.

No matter the outcome -- good, bad or ugly -- millions of fund shareholders are along for the ride. The funds run by Denver growth shop Janus owned almost 11% of Comcast's shares at the end of the first quarter, the most recent data available from lionshares.com. At the end of April, the shop's flagship (JANSX)Janus fund owned 4.9% of the company, while the (JAWWX)Janus Worldwide and (JAMRX)Janus Mercury funds owned a combined 1.7% of the firm. In sum, Janus managers slightly reduced their Comcast stake in the first three months of this year. (The company declined to comment on the deal.)

A Fan in Denver Janus stands out among the fund companies with the biggest stakes in Comcast
Mutual Fund Company	Percentage of Comcast Owned	Percentage of Companywide Holdings
Janus	10.8%	2.6%
Alliance	5.1	0.8
AIM	3.6	1.6
Barclays Global Investors	3.3	0.3
Fidelity	2.9	0.2T
S&P 500	N/A	0.4
Source: lionshares.com. Holdings through March 31.

Because Comcast only accounts for 0.4% of the S&P 500, even a 1% position in a fund's portfolio represents a decent bet vs. that benchmark. A list of the 10 funds with the highest percentage of their shareholders' money in Comcast turns up several funds whose managers are pulling for this deal to bear fruit.

Whether they know it or not, shareholders of these funds and many others have put their faith in the Roberts family too.

Bellying Up to the Comcast Buffet These 10 funds have the biggest bets on Comcast's shares
Fund	Percentage of Assets in Comcast	YTD Return
(TPAGX)Transamerica Premier Aggressive Growth	7.1%	-19.1%
(AITAX)Alliance Select Investor Technology	6.5	-20.7
(SRLFX)Stein Roe Focus	5.9	-13.2
(JANSX)Janus	5.7	-16
(OAKVX)Oak Value	5.5	2.8
IDEX Transamerica Equity	5.0	-13.2
(TEQUX)Transamerica Premier Equity	5.0	-13.9
(BSPAX)Bear Stearns S&P Stars	4.9	-8.3
(SHRAX)Smith Barney Aggressive Growth	4.6	0.2
Fidelity Select Multimedia	4.4	10.0
S&P 500	0.4	-9.3
Source: Morningstar. Data as of most recent portfolio holdings, excluding funds with less than $100 million assets and portfolio data older than March 31.

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