03 December 2009

Comcast, General Electric Make It Official

Multichannel News

The $30 billion deal that switches control of NBC Universal from General Electric to Comcast brings value to allow everyone involved to focus more sharply on their core businesses, leaders of the two companies said Thursday.

"Either you're moving forward or you're moving backwards," GE CEO Jeff Immelt said in an interview on CNBC. "Being able to partner in cable and digital makes NBC Universal more valuable for investors, for Comcast investors and for the NBCU team."

General Electric and Comcast earlier announced the agreement that stands as one of the biggest deals in media history.

Comcast [ CMCSA 15.975  +1.035 (+6.93%) ], the largest cable TV operator in the US, will end up controlling 51 percent of the newly-formed company while GE [ GE 16.25  +0.18 (+1.12%) ] will own 49 percent.

The transaction could take more than a year to close as the companies await approval from the Federal Communications Commission.

Comcast Chairman Brian Roberts told CNBC he believes the deal will be approved, as do most analysts.

"We think this is an approvable transaction," Roberts said during a joint interview with Immelt (see video below). "We think this is pro-consumer and brings real benefit at a time when distribution is going from physical to electronic in the digital age. This vertical integration tends not to present some of those challengs that a horizontal integration might."

Roberts added that he sees few major changes occurring at least for employees as Comcast realizes the value particularly of the cable channels, such as Bravo, Syfy and E!, in NBC's domain.

"This is a different time, a different deal, and we'll have to execute to show that. But in our assumptions we're not assuming any great layoffs or changes as a result of that," he said. "We think cable programming and the content business in general, structured properly, is a good business."

"This deal is highly structured, gives us real incentives to grow the business together," he added. "I think the two of us coming together are better than alone and the fact that we're a cable company is certainly not going to hurt this company. I think we're going to focus and we're pretty excited."

GE, parent of CNBC, currently owns 80 percent of NBCU, which the two companies have valued at about $30 billion. Before a final deal could be struck, Vivendi of France had to agree to sell its 20 percent stake in NBC Universal, which GE ultimately agreed to buy for $5.8 billion.

The mega deal includes the spinoff of NBC Universal and $9.1 billion in debt. It also includes the merger of Comcast's content assets valued at $7.25 billion and a $6.5 billion cash contribution.

"For Comcast, this transaction is strategically compelling and will generate attractive financial returns and build shareholder value," Comcast Chairman and Chief Executive Officer Brian Roberts said in a press statement.

"It is also expected to be immediately accretive and will also allow us to maintain our strong commitment to returning capital to shareholders- all while increasing the scale, capabilities and value of our cable distribution, content and digital assets," Roberts added.

At the same time, Comcast announced it increased the company's planned annual dividend by 40 percent to $0.378 per share.

Disney Rival

When completed, the deal would make Comcast one of the nation's largest entertainment companies rivalling the heft of its former takeover target, Walt Disney [ DIS 30.59  -0.20 (-0.65%) ].

The transaction will generate about $8 billion in cash at closing, with an expected small after-tax gain, GE chairman and CEO Jeff Immelt said in the statement.

"I believe that the new NBCU will deliver value for both Comcast and GE in the future. We will give consumers and advertisers more choice and our cable and digital assets will be second to none," Immelt said.

Comcast wants NBC Universal largely for its lucrative cable channels, such as Bravo and CNBC. NBC Universal also spans the NBC and Telemundo broadcast networks, the Universal Pictures movie studio and Universal theme parks.

Comcast is eager to diversify its holdings amid an encroaching threat from online video and more aggressive competition from satellite and phone companies that offer subscription TV services.

Jeff Zucker, current president and CEO of NBCU, will be CEO of the new joint venture.

The deal bodes well for the two companies, Lawrence Haverty, Associate Portfolio Manager at Gabelli Global Multimedia Trust, told CNBC. Haverty owns shares in both companies.

The cable business is going to rebound with advertising revenues in general but "the future for the broadcast networks is very problematic," he said.

"The only reason to hold off on this is the regulatory delay issue which is frankly, in my opinion, just a mess… the time that it's going to take," Haverty added.

The two companies will look at all platforms to see where they can find value, Anthony Fry, senior managing director at Evercore Partners, told CNBC's "Strictly Money.""They will want to keep whatever they can actually find a way of creating monetary value across multiple platforms… The future is about what is the content that you own that you can find ways of distributing, of which customers will pay," Fry said.

Although the deal holds the promise that movies could reach cable TV more quickly after showing in theatres, and that TV shows could appear faster on cell phones, it has already raised concerns that Comcast would wield too much power over entertainment.

Exit provisions are critical in joint ventures because they deal with when and how a partner can get out. In the case of GE, many of its shareholders have urged the conglomerate to offload NBC Universal, whose broadcast and cable networks, movie studio and theme parks are considered misfits among GE's mostly industrial operations.

Vivendi will continue to receive quarterly dividends from NBC Universal until the deal is completed and if it does not complete, it would launch an accelerated IPO for the stake, the company said. 

Comcast and General Electric Co. formally announced what may arguably have been the media industry's worst kept secret over the past few months, that they have agreed to form a joint venture with GE's NBC Universal media properties valued at about $30 billion.

The announcement, which had been expected ever since early October when it first surfaced that the two business giants were in talks, contained few surprises. According to the deal GE will contribute NBCU's businesses valued at $30 billion, including its cable networks, filmed entertainment, televised entertainment, theme parks, and unconsolidated investments, subject to $9.1 billion in debt to third party lenders. Comcast will contribute its cable networks including E!, Versus and the Golf Channel, its ten regional sports networks, and certain digital media properties, collectively valued at $7.25 billion, and make a payment to GE of approximately $6.5 billion of cash subject to certain adjustments based on various events between signing and closing.

A conference call with the financial community is scheduled fortoday at  8:30 p.m. (ET),  while a media call is slated for two hours later. Check multichahnnel.com for updates and more details on this transformative agreement.

The deal will create the Comcast Entertainment Group (CEG), which will house Comcast's interest in the joint venture and will stand alongside Comcast Cable, which operates the company's traditional cable business. Headquarters for the business will remain in New York. The joint venture board will have three directors nominated by Comcast and two nominated by GE.

"This deal is a perfect fit for Comcast and will allow us to become a leader in the development and distribution of multiplatform ‘anytime, anywhere' media that American consumers are demanding," Comcast chairman and CEO Brian Roberts said in a statement. "In particular, NBCU's fast-growing, highly profitable cable networks are a great complement to our industry-leading distribution business. Today's announced transaction will increase our capabilities in content and cable networks. At the same time, it will enhance consumer choice and accelerate the development of new digital products and services."

The deal marks the beginning of an exit from the media space for GE, which bought the NBC broadcast network in 1986 and steadily increased its cable holdings over the years. In 2004 the company significantly boosted its cable presence with the purchase of 80% of Vivendi Universal and under chairman Jeff Zucker has added to its cable portfolio with the purchase of networks like Oxygen and The Weather Channel. Zucker will become CEO of the joint venture, reporting to Comcast chief operating officer Steve Burke.

"The combination of Comcast's cable and regional sports networks and digital media properties and NBCU will deliver strong returns for GE shareholders and business partners," GE chairman and CEO Jeff Immelt said in a statement. "NBCU has been a great business for GE over the past two decades. We have generated an average annual return of 11 percent, while expanding into cable, movies, parks and international media. We are reducing our ownership stake from 80 percent to 49 percent of a more valuable entity. By doing so, GE gets a good value for NBCU. This transaction will generate approximately $8 billion of cash at closing with an expected small after-tax gain."

While some critics have pointed to the failure of past attempts to meld distribution with content - Time Warner, which split off its cable distribution unit in March is held up as a prome example, Burke said in a statement that the situation will be different with Comcast NBCU.

"Both Comcast and NBCU have excellent track records of integrating and growing multi-billion dollar businesses, including significant content acquisitions," Burke said in a statement. "In addition, we have both developed some of the country's most popular programming and built many of the most watched and valued networks in the industry. We are confident that we'll be even stronger together, and look forward to working with Jeff Zucker and the NBCU team to deliver the best consumer experience."

Zucker also seemed promed for the challenge.

"Combining the assets of NBCU, ranging from our suite of cable properties and two broadcast networks to a legendary film studio and global theme park business, with the content assets and resources of Comcast, will enable us to continue to thrive in an ever-changing media landscape," Zucker said in a statement. "Consumers of all of our products - on screens large and small - will have the benefit of enhanced content and experiences, delivered to them in new and better ways as a result of this transaction. This marks the start of a new era for NBCU, and I'm genuinely excited that I will be leading this wonderful organization, along with the Comcast team, at this important time in our history."

Below are some of the key deal points:

• NBCU will borrow approximately $9.1 billion from third-party lenders and distribute the cash to GE.

• NBCU, valued at $30 billion, will be contributed to the newly formed joint venture. Comcast will contribute its programming businesses and certain other properties valued at $7.25 billion.

• GE will acquire Vivendi's 20% interest in NBCU for $5.8 billion. GE will purchase approximately 38% of Vivendi's interest (or approximately 7.66% of all outstanding NBCU shares) from Vivendi for $2 billion in September 2010, if the Comcast transaction is not closed by then. GE will acquire the remaining 62% of Vivendi's interest (or approximately 12.34% of all outstanding NBCU shares) for $3.8 billion when the transaction closes.

• Comcast will make a payment to GE of approximately $6.5 billion in cash subject to certain adjustments based on various events between signing and closing.

• The new venture will be 51% owned by Comcast and 49% owned by GE.

• GE expects to realize $9.8 billion pre-tax in cash before debt reduction and transaction fees and after buyout of the Vivendi stake. GE expects to realize approximately $8 billion in cash after paying down the existing NBCU debt and transaction fees.

• GE will be entitled to elect to cause the joint venture to redeem one-half of its interest at year 3 ½ and its remaining interest at year 7. The joint venture's obligations to complete those purchases will be subject to the venture's leverage ratio not exceeding 2.75X EBITDA and the venture continuing to hold investment-grade ratings. Comcast also has certain rights to purchase GE's interest in the venture at specified times. All such transactions would be done at a 20% premium to public market value with 50% sharing of upside above the closing valuation.

• To the extent the joint venture is not required to meet GE's redemption requests, Comcast will provide a backstop up to a maximum of $2.875 billion for the first redemption and a total backstop of $5.750 billion.

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