December 4, 2009

Comcast, NBC Deal Would Create Media Superpower

A deal between Comcast Corp and General Electric Co will see Comcast buying up a majority stake in NBC Universal, creating a media superpower that will have control over how television and movies are made and viewed in the home, Reuters reported.

The deal has caused a lot of controversy among media executives, with some lauding Comcast Chief Executive Officer Brian Roberts as a visionary and others calling it the most foolhardy acquisition since AOL's 2001 takeover of Time Warner.

Comcast wants NBC Universal so it can deliver programming to audiences through TV sets, personal computers or mobile devices. Comcast is the largest cable distributor and Internet service provider in the U.S.

However, critics of the deal say there is too little overlap between the businesses to draw out meaningful savings, and that competition regulators are bound to burden it with restrictions.

After reports of the deal first surfaced in September, Comcast's shares have fallen 11 percent, but the stock rose 6.5 percent to $15.91 on Thursday after Comcast unveiled the transaction and raised its dividend 40 percent -- a move aimed at appeasing shareholders.

Collins Stewart analyst Thomas Eagan told Reuters they're still very unsure about the value created from the deal, as there have been concerns on Wall Street over the past couple of weeks about the deal inhibiting their ability to buy back shares or increase their dividends.

Comcast is set to contribute $6.5 billion in cash, its own cable TV networks and other assets in return for a 51 percent stake in NBC Universal, owner of TV networks, a movie studio and theme parks. GE will keep a 49 percent stake.

NBC Universal's businesses have been valued at $30 billion, according to the companies. The Comcast businesses that will be part of the deal -- including E!, Versus, the Golf Channel and 10 regional sports networks -- are valued at $7.25 billion.

The companies said the new venture would have an equity value of about $28 billion once adjustments are made for debt -"“ giving it three times the market value of CBS Corp or Discovery Communications Inc, and nearly as much as Rupert Murdoch's $33 billion News Corp. The biggest media company will still be Walt Disney Co, at $57 billion.

The negotiations, which began last spring, nearly fell through numerous times and were kept secret from even top-level NBC Universal executives until September, when news reports of the talks began circulating.

Now executives must make their case to U.S. regulators, who are certain to hear complaints from consumer groups, before the deal closes. Comcast is hoping for regulatory approval within the next nine to 12 months.

The deal would allow GE to concentrate on its industrial business, and could be the first step in a full break with NBC Universal, ending a relationship almost as old as television itself.

Half of GE's stake in the venture can be reclaimed after 3 1/2 years, and the rest after seven years, subject to conditions.

NBC Universal's current Chief Executive, Jeff Zucker, who helped build the company's valuable cable business but has also presided over a prolonged slump at its flagship broadcast network, will head the joint venture.

Since failing to recover from hits like "Seinfeld" and "Friends," NBC regularly finishes last in the prime-time ratings race.

Zucker has tried to cut programming costs, abandoning dramas at 10 p.m. in favor of Jay Leno's poorly rated, though inexpensive, comedy-talk show.

Meanwhile, Comcast is more interested in cable networks like MSNBC or USA, and its digital business.

Additionally, having a stake in Hulu.com will help Comcast sidestep a big concern for cable companies -- namely, that users may start cutting subscriptions if they can see their favorite shows online for free.

Comcast would also be able to offer blockbuster films on movie-on-demand channels ahead of a DVD release; since it will own NBC Universal's movies, Comcast could narrow the traditional "window" between a movie's theatrical run and its home entertainment release.

Comcast's Roberts launched a hostile and audacious $54 billion bid to buy Walt Disney in 2004, but failed.

Comcast reportedly received financial advice from Morgan Stanley, UBS and Bank of America-Merrill Lynch, while JPMorgan, Goldman Sachs and Citi advised GE.


On the Net: