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Comcast May Bid on Vivendi Universal's Entertainment Assets

Posted on: Thursday, 24 July 2003, 06:00 CDT

Jul. 25--Comcast Corp., which has amassed the largest U.S. cable television company, is considering a bid on Vivendi Universal's U.S. assets, which include movie giant Universal Studios, USA Network and other cable channels.

Comcast's inquiry into the Vivendi assets, first reported yesterday by the Wall Street Journal, was "extremely preliminary," said a person familiar with the situation. Comcast was studying the businesses of USA and Universal before deciding whether to submit a bid.

Such an acquisition would increase Comcast's portfolio of programming -- which is the movies, television shows, and cable channels that run on Comcast's cable systems.

The market was unimpressed. Comcast shares closed yesterday at $28.40, down 96 cents, on the Nasdaq Stock Market. Vivendi shares finished at $18.22, up 28 cents on the New York Stock Exchange.

Philadelphia-based Comcast and Paris-based Vivendi Universal declined to comment.

For now, the big question is: How serious is Comcast about Vivendi's U.S. assets?

Comcast shed some programming when it agreed this month to sell its stake in television shopping network QVC to Liberty Media Corp. for about $8 billion as part of an aggressive campaign to slash debt.

Comcast has been trying to convince the financial world of the company's fiscal responsibility -- and its attractiveness as an investment -- following its acquisition last year of AT&T Broadband. Comcast has since been selling assets to reduce nearly $30 billion in debt to what will be about $20 billion, if the QVC deal closes by the end of the year as expected.

Bidding for USA and Universal has reached $11.5 billion among suitors including Liberty Media Corp., Metro-Goldwyn-Mayer Inc., General Electric Co.'s NBC division, Viacom Inc., and a team led by Edgar Bronfman Jr. Vivendi reportedly thinks its properties are worth more, perhaps $14 billion.

The person familiar with the situation said "another party" suggested to Comcast that it consider the Vivendi assets -- the source would not say whether it was Vivendi, desperate to spice up the bidding, or another bidder, perhaps seeking an investment partner, that encouraged Comcast.

Vivendi is selling the Vivendi Universal Entertainment unit -- which includes the Universal film studios and theme parks and the USA and Sci-Fi Channel cable networks -- to reduce debt.

Vivendi teetered near bankruptcy under ousted chief executive Jean-Marie Messier, who envisioned water-utility Vivendi as a diversified utility, telecommunications and entertainment company. Vivendi's current management is trying to repair the damage.

Analysts say that simply by virtue of Comcast's being interested, other bidders could be spurred to raise their offers.

Wall Street reaction ranged from caution to skepticism about the likelihood of Comcast's making a deal with Vivendi.

Todd Mitchell, cable and satellite analyst for Blaylock & Partners in New York, said Comcast's involvement was probably just perfunctory, though the company could execute the purchase if it so wanted.

"When you are of Comcast's size, you're obligated to take a look at any transaction of this nature," Mitchell said.

UBS Warburg analyst Aryeh Bourkoff wrote in a research bulletin yesterday that Comcast's tire-kicking was "consistent with our view that Comcast aspires to become an integrated media company with both content and distribution."

Among Comcast's content holdings are the Golf Channel, the Outdoor Life Network, E! Entertainment Television, and videogame channel G4. Comcast is also in a partnership with Radio One Inc. to launch and carry TV One, a budding cable network that will cater to adult African Americans.

Cable operators such as Comcast and Cox Communications Inc. complain that subscribers' cable rates are rising quickly because of steep increases demanded by content providers such as HBO, ESPN, and other cable networks.

Owning some content could help cable operators slow down those rate hikes.

Nonetheless, Mitchell said, the greatest increases are coming from sports programmers. And the Vivendi assets don't include sports channels.

He added that another big-ticket purchase for Comcast would alter company executives' rosy financial predictions given at countless investor and analyst briefings this year.

"It would be dilutive to cash flow on a per-share, per-subscriber basis. The story over the next year is" cash flow, Mitchell said.

"Acquiring any of these assets would throw a wrench in that."

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(c) 2003, The Philadelphia Inquirer. Distributed by Knight Ridder/Tribune Business News.

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