SG Cowen notes the dilution and integration risks of Comcast's (CMCSK ) proposal to buy AT&T's broadband unit.
Analyst Gary Farber says the combination would solidify the company as the largest cable operator, and create a broadband behemoth that is 70% larger than the nearest cable competitor, AOL Time Warner. He says the merged company would be an excellent distribution platform from which Comcast could drive revenues. He sees cost savings, and a leverageable, upgraded base from which Comcast can roll out new services.
On the risk side, Farber notes that by annualizing the Q1 EBITDA of AT&T's cable unit and consolidating it with Comcast, the company's current 3.8 leverage ratio would rise to about 5.5. Farber also sees operational issues as a concern.