Comcast, GE Said to Discuss NBC Universal Stake Sale
Oct. 1 (Bloomberg) -- Comcast Corp., the largest U.S. cable network, is in talks with General Electric Co. to buy a stake in NBC Universal Inc., said three people with knowledge of the discussions.
Negotiations for Comcast to buy about 50 percent of NBC Universal have been under way for at least two months and a deal would depend in part on Vivendi SA making a decision to sell its 20 percent holding, said one of the people, who declined to be identified because the talks are private. GE, based in Fairfield, Connecticut, controls 80 percent of NBC Universal, owner of the NBC television network, a film studio, theme parks, and cable channels including USA Network, CNBC, MSNBC and Bravo.
No agreement is certain, the people said.
NBC Universal offers cable content that Comcast Chief Executive Officer Brian Roberts has targeted as a priority for future acquisitions. GE said in November it had no plans to sell NBC Universal. In his letter to shareholders in March, Chief Executive Officer Jeffrey Immelt described a “reset” following the financial crisis and recession. Analysts value NBC Universal at $21 billion to $35 billion including debt.
Jean-Bernard Levy, CEO of Paris-based Vivendi, has described NBC Universal as a “non-core” asset and has made acquisitions in other businesses. The company has the right to sell its holding and may make a decision at an Oct. 14 board meeting, a person with knowledge of the situation said on Sept. 21. GE has the right of first refusal.
No Deal
Philadelphia-based Comcast slid 50 cents, or 2.9 percent, to $16.88 yesterday in Nasdaq Stock Market trading and is little changed this year. GE fell 29 cents to $16.42 in New York Stock Exchange composite trading, and has gained 1.4 percent this year. Vivendi rose 2 cents to 21.15 euros in Paris and has dropped 9.1 percent this year.
The talks were reported yesterday by the Los Angeles-based Web site The Wrap. Comcast denied the Wrap’s later report that a deal had been reached to sell NBC Universal for $35 billion. The story cited two unidentified individuals who had been informed of the matter.
“While we don’t comment on M&A rumors, the report that Comcast has a deal to purchase NBC Universal is inaccurate,” D’Arcy Rudnay, a spokeswoman for Philadelphia-based Comcast, said in an e-mail.
Credit Thaw
Gary Sheffer, a spokesman for Fairfield, Connecticut-based GE, declined to comment, as did Flavie Lemarchand-Wood, a New York-based spokeswoman for Vivendi.
Media companies including Comcast have used the thawing of credit markets to raise money through debt sales. Comcast has $4 billion in cash, and the company has said it is interested in adding to cable channels that include Golf Channel, E! Entertainment and Style Network.
In 2004, CEO Roberts’ $54.1 billion hostile bid for Walt Disney Co. was rejected. Chief Operating Officer Stephen Burke said at a Sept. 9 investor conference that content companies are Comcast’s first acquisition priority. The company isn’t looking to make a $50 billion purchase, he said.
Content channels “are really good businesses,” Burke said. “We wouldn’t be doing our job if we didn’t try to figure out a way to get bigger in those businesses.”
Comcast serves about 25 percent of U.S. cable customers. The company reported 23.9 million video customers as of Aug. 6, down 2.7 percent from a year earlier. Revenue growth was 5 percent in the most recent period, the smallest in more than three years.
NBC’s Value
Vivendi, owner of the world’s largest music company, may choose to sell its stake because NBC Universal isn’t performing as well as the company’s majority-owned operations, according to the person who spoke on Sept. 21.
The business’s enterprise value may be $21 billion to $23 billion, including an estimated $5.1 billion in debt, Sanford C. Bernstein & Co. said last month. Stephen Tusa, a JPMorgan Chase analyst, estimated NBC Universal’s total value at $30 billion to $35 billion in a Sept. 8 research note.
NBC Universal posted a 41 percent drop in second-quarter profit on lower earnings from broadcast television and its film studio. Broadcast revenue slid 9 percent to $1.4 billion, while the cable unit’s profit climbed 7 percent on a 3 percent increase in revenue.
Operating profit at New York-based NBC Universal tumbled to $539 million from $909 million a year earlier, parent GE reported in a July 17 statement. Revenue at the division, led by Chief Executive Jeff Zucker, fell 8.2 percent to $3.57 billion.
GE Rights
Vivendi obtained the NBC stake with the sale of its media assets to GE in 2004. Every year between Nov. 15 and Dec. 10, the Paris-based company may notify GE of its intent to sell the shares in the market, which could lead to a public offering, according to Vivendi’s annual report. That option extends through 2016. GE can preempt an IPO by buying the holding, the report says.
GE may use its right of first refusal and buy the stake, Vivendi may sell the shares in the public market with the process controlled by GE, Vivendi may agree to sell in a private placement to a third party or the contract may be restructured for an initial public offering of all of NBC, the Sanford C. Bernstein analysts wrote.
Analysts including Citigroup’s Jeffrey Sprague and Sterne Agee & Leach Inc.’s Nicholas Heymann have for years called for GE to split off NBC Universal, saying it doesn’t fit with the parent company’s other divisions.
Immelt Moves
GE’s businesses include the world’s biggest makers of jet engines, locomotives and medical imaging machines. Its power- generation equipment produces about one-third of the world’s electricity. The company is shrinking its GE Capital finance division and boosting its investments in what Immelt has labeled infrastructure units. Immelt sold the plastics division in 2008 and exited insurance over several years this decade.
“GE’s broad technical portfolio positions us as a natural partner as the role of government increases in the current crisis,” Immelt, 53, wrote in the letter to shareholders. “Over the past decade, we have positioned GE to lead in the ‘big themes.’ These include emerging market growth, clean energy, and sustainable health care.”
NBC’s cable properties are growing and should be broken off from the network, Tusa said in last month’s note.
“This could either be done by GE, or by making the asset more attractive for a strategic player who could buy NBCU whole and fund/execute a transaction,” he said.
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