NBC wins Vivendi auction

0 Comments | Oakland Tribune, Sep 3, 2003 | by Jamey Keaten, Associated Press

PARIS -- General Electric Co.'s NBC emerged the winner Tuesday of a tortuous, months-long contest for the entertainment assets of Vivendi Universal, which include a major movie studio, three cable channels, a television studio and several theme parks.

NBC and Vivendi said they intend to combine the assets into a new company, which would most likely be called NBC Universal, though a final deal has yet to be worked out. The companies expect to complete the last phase of talks by the end of the month.

A merger, should it come to pass, would create a major media player with $13 billion in annual revenues that would include NBC's television network, an array of cable networks like MSNBC, CNBC, USA and Sci-Fi, and Universal Pictures, whose recent films include "Seabiscuit" and "The Hulk."

It also would unite Universal Television, the studio behind the popular program "Law and Order," with the network that airs it in the United States: NBC. "The studio side is almost part of NBC," said Bob Wright, NBC's chairman.

For NBC, the deal would give the network more heft in an industry dominated by titanic companies like AOL Time Warner Inc. and Viacom Inc., which owns MTV and CBS. NBC has been the only major network not owned by a larger media conglomerate. Walt Disney Co. owns ABC and News Corp.

owns Fox.

The decision by Vivendi to enter exclusive merger talks with GE ended a months-long auction process that attracted the interest of at least five other companies. Last week, Vivendi trimmed the list to two -- NBC and a consortium including former Seagram Co. chief executive Edgar J. Bronfman Jr.

Bronfman, who once controlled the Universal properties when they belonged to Seagram, led a last-ditch lobbying effort over the weekend to salvage his bid, a source familiar with the matter told The Associated Press.

For Vivendi, the deal offers an opportunity to trim back debts -- which totaled $13 billion at the end of July -- run up during a buyout spree under former chief executive Jean-Marie Messier. Vivendi had hoped to fetch about $14 billion for the Universal assets.

Shedding them takes Vivendi further away from Messier's lofty ambition of creating a media powerhouse. A deal with GE would leave Vivendi as a European mobile phone and cable TV service provider with a minority stake in a big U.S. entertainment company.

For GE -- already one of the world's most diverse conglomerates -- the deal would extend its realm into Hollywood movies and theme parks while strengthening its NBC brand.

"This deal makes sense because NBC needs to be in everything," said Brian Abbott, a professor of marketing and management at Long Island University. "They need to be in motion pictures, publishing and music as well. This is a logical extension of their brand."

Universal's U.S. cable assets -- USA, Sci-Fi and Trio -- would join the NBC stable including the Bravo network and Spanish-language broadcaster Telemundo.

The new company would also have interests in five theme parks.

GE would hold 80 percent of the combined company, and Vivendi would own 20 percent. Wright, who is also vice chairman of GE, would head the new company.

If the deal is closed, shareholders of Vivendi Universal Entertainment would receive $3.8 billion in cash and stock and $1.6 billion in debt reduction, Vivendi said.

Speaking to reporters at Vivendi headquarters in Paris, chairman Jean-Rene Fourtou said Vivendi and GE expected to sign a contract by month's end, barring any drastic last-minute changes.

The deal's final terms could change by the contract signing, he said.

Vivendi, which under Fourtou's year-old tenure has engaged in a fire sale of assets, hopes to trim its debt to $5 billion by the end of next year, he said.

Vivendi would commit to retaining its stake in the merged firm until 2006.

After that, it could either sell its stake or join NBC floating the firm on stock exchanges.

Jean-Bernard Levy, the chief operating officer of Vivendi, said in an interview with The Associated Press that Vivendi's 20 percent stake in the new company would be worth $8.3 billion, valuing the entire company at $41.5 billion.

Fourtou said GE's offer was a better "strategic fit" than the one from Bronfman's group, which "didn't have the industrial weight" of GE.

Bronfman's offer would have been "a financial adventure" that provided cash to Vivendi but left it with persistent debt, he said.

After the deal was announced, Vivendi's U.S.-traded shares jumped $1.35 or 8 percent to close at $18.25 on the New York Stock Exchange.

GE's shares rose 87 cents, or 3 percent, to $30.44.

Other media companies had bowed out of the talks for the Vivendi assets, several of them balking at Vivendi's asking Price. Liberty Media Corp., Viacom Inc., Metro-Goldwyn-Mayer Inc. and Comcast Corp. had all expressed interest.