In The News

NBC is last suitor standing

G.E.'s peacock, VUE to form $42 bil entity

Georg Szalai and Shiraz Sidhva

September 3, 2003, Wednesday

General Electric's NBC emerged Tuesday as the likely winner in the months-long bidding contest for Vivendi Universal's entertainment assets as the two companies said they would enter exclusive talks to finalize a merger that would see Vivendi Uni retain a 20% stake in the combined entity.

The merged company, which analysts said would have an enterprise value of about $42 billion, would be headed by Robert Wright, vice chairman of GE and chairman and CEO of NBC.

The proposed deal would keep one of Vivendi Uni's feet firmly planted in Hollywood while transforming NBC into the latest entertainment giant by aligning its TV properties with a bigger Hollywood operation.

Vivendi Uni directors, in an extraordinary board meeting Tuesday, gave the go-ahead for the NBC transaction. 

For Vivendi Uni, the deal would take $1.6 billion in debt off its balance sheet and give it GE stock that will be monetized into $3.8 billion in cash.

In addition to this $5.4 billion, Vivendi Uni has the right to sell its 20% stake in several years, with NBC having the first shot at buying it. In total, sources suggested that Vivendi Uni valued the deal at close to the $14 billion it was looking for.

But some cautioned that retaining a stake in Hollywood would be a gamble. "The stake could have a value of $8 billion in a few years, but you can't be sure that it will," said Ken Marlin, managing partner at media investment bank Marlin & Associates.

Either way, upon the closing of the planned NBC transaction, Vivendi Uni said it will have achieved its goal of selling 16 billion of assets by the end of next year.

In a joint statement, NBC and Vivendi Uni said "the merger would create one of the world's most profitable and fastest-growing media companies."

On a pro forma basis, the merged company would have 2003 revenue of $13 billion and cash flow of $3 billion.

"This transaction would create a media company that is superbly positioned to generate substantial growth both now and in the long term," Wright said in a statement.

He added that the two firms' assets "are extremely complementary" and would lead to unspecified synergies. Merrill Lynch analyst Jessica Reif Cohen estimated such synergies at $400 million-$500 million, with 75% of that to come from cost reductions.

Observers predict that overlapping functions at NBC's and VUE's TV operations will lead to staff reductions. NBC and Vivendi Uni declined comment Tuesday.

In a statement Tuesday, Vivendi Universal chairman Jean-Rene Fourtou confirmed observers' belief that GE management's strong reputation on Wall Street was a driving force behind Vivendi Uni's decision.

"During the past few weeks, I have had the opportunity to work with (General Electric CEO) Jeff Immelt, Bob Wright and their team," he said. "They certainly deserve their strong reputation as extremely talented managers."

This helped NBC edge out a consortium around Edgar Bronfman Jr. that had continued to push its competing bid in negotiations all weekend.

Street observers suggested that Bronfman may now go after the Universal Music Group, which Vivendi Uni has decided not to sell for now. A spokesman for Bronfman declined comment Tuesday, but sources close to him said he was unlikely to make a major takeover play in the near term.

"We believe ours was a compelling proposal for Vivendi Universal," Bronfman said in a written statement. "Now that Vivendi's board has decided to enter into exclusive negotiations with GE/NBC, I am hopeful that Vivendi's strategic direction will reward its employees and shareholders for their patient and steadfast support." As the biggest private shareholder, the Bronfman family owns a 3.48% stake in Vivendi Uni as of June 30.

In late May, Vivendi Uni reached an agreement with vice chairman Bronfman and his father, Edgar Bronfman Sr., that suspended their activities on the company's board during the takeover talks. It was not immediately clear if and when their full board participation will be reinstated.

Investors gave the NBC deal a thumbs up. GE's stock rose 0.87 on Tuesday to close at 30.44. In Paris trading, Vivendi Uni shares closed up 4.1% at 16.60 ($17.89). In New York, Vivendi Uni's American depository shares soared 8% to 18.25.

One player affected by the deal, InterActiveCorp CEO Barry Diller, also seemed comfortable with the NBC merger, sources said. Wright and Diller had a good conversation Tuesday, one source said. Diller was not available for comment.

But some Wall Street observers cautioned investors. "There is a risk that NBC could attempt to renegotiate the price of any deal downwards" before a final agreement is reached, UBS analyst Mike Hilton said.

Added a money manager involved with the deal: "NBC's got a reputation as a tough negotiator, so there's no telling how the story will end."

Sources said Vivendi Uni and NBC plan to finalize a transaction, which is unlikely to face major regulatory hurdles, during the coming month.

While NBC and Vivendi Uni have yet to outline all benefits of the planned merger, Fourtou said during a news conference in Paris that a deal with Bronfman would have "offered less strategic potential."

He hinted that the merged firm could also tap into UMG's strength. "Ours is not going to be a passive role," Fourtou said. "We own 20%, but we hope to strongly enhance the value of our television and music brands to create an impressive force."

Georg Szalai reported from New York; Shiraz Sidhva reported from Paris.