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Ge nbc vivendi universal merger { October 8 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/10/08/business/08CND-VIVEND.htmlhttp://www.nytimes.com/2003/10/08/business/08CND-VIVEND.html
October 8, 2003
G.E. and Vivendi Agree on Terms of NBC Universal Merger
By KENNETH N. GILPIN
General Electric and Vivendi Universal S.A. said today that they had signed a definitive agreement to merge Vivendi's American entertainment assets with NBC, G.E.'s broadcasting subsidiary, firming up a deal that was tentatively reached last month.
The new company, to be called NBC Universal, will be 80 percent owned by General Electric. Shareholders of Vivendi Universal Entertainment, the entity G.E. is buying, will own the remaining 20 percent of the combined company.
The companies, in a joint statement, placed an estimated value of the combined entity at $43 billion.
But the actual price General Electric is paying is far less than that.
Under the terms of the transaction, Vivendi will receive about $3.8 billion in cash through a stock offering. Of that total, Vivendi shareholders will get $3.3 billion. The remainder will go to other investors in Vivendi Universal. In addition, General Electric will assume $1.7 billion in Vivendi debt.
Analysts said the terms announced today were not sharply at odds with what was disclosed on Sept. 2, when Vivendi announced it had entered into exclusive talks with General Electric, ending a very public auction for its American entertainment assets that stretched through the summer.
"General Electric paid a fair price," said Tom Burnett, president of Merger Insight, an affiliate of Wall Street Access, an independent broker-dealer and research firm.
"There could be some tax benefits to Vivendi in the deal that we can't see yet," he said. But the "$43 billion valuation number they use is kind of a stretch, because that is more than three times 2003 pro forma revenues and more than 14 times estimated 2003 earnings before interest, taxes, depreciation and amortization."
Vivendi had been seeking to unload Vivendi Universal, which among other things owns Universal Pictures, Universal Television and a number of cable television stations, to pare a huge pile of debt amassed under Jean-Marie Messier, its former chief executive.
In a conference call from Paris this morning, Jean-Rene Fourtou, Vivendi's chief executive, said the merger would raise Vivendi's earnings per share and cash flow by at least 30 percent in 2004, and possibly by as much as 50 percent, according to Agence France-Presse.
Mr. Burnett and other analysts said the deal should put to rest speculation that General Electric would get out of the broadcasting business.
"A lot of people wanted G.E. to get out of television and to sell NBC at a huge gain," said Mr. Burnett, who personally owns some G.E. shares.
With this deal, General Electric "is saying that NBC is a core competency."
Jeffrey R. Immelt, G.E.'s chairman and chief executive, said in a statement that "with this merger, NBC will stay in the forefront of the fundamental changes taking place in television and other media."
"The new NBC Universal will have the assets, the management team and the operating focus to prosper in a digital world and enhance value for G.E. and Vivendi Universal shareholders," he said.
Because of overlaps in the two businesses, the combined entity will also be able to achieve substantial cost savings. In their joint announcement, the companies said they have identified $400 million to $500 million in potential synergies.
Kerry Stirton, an analyst who follows General Electric at Sanford C. Bernstein & Company, said that immediately after the Sept. 2 announcement, "I had been saying cost savings of $300 million."
"But now that I have had a chance to pester them more," Mr. Stirton added, "I think their numbers are in the ballpark. Our European media team believes that, too."
As previously announced, Robert C. Wright, NBC's chief executive, will run the new NBC Universal.
As a minority partner, Vivendi will get three seats on the NBC Universal board.
The deal, which still must be approved by American and European regulators, is not expected to close until the first half of 2004, the companies said.
"We don't see any regulatory problems," Mr. Stirton said. "You are creating something that looks a lot like what exists at four other entities," he said, referring to Viacom, AOL Time Warner, Fox and Disney. "They all have a similar vertical integration scheme."
NBC Universal will have about $13 billion in sales. With its expanded position in cable and broadcasting, General Electric will become one of the nation's biggest media companies and should stand to enhance its negotiating position with producers of television programs, analysts said.
NBC Universal's portfolio of cable channels will include USA Network, the Sci-Fi Channel, CNBC, Bravo, Trio and MSNBC, which it owns jointly with the Microsoft Corporation.
NBC Studios and Universal Television, the combined entity's production assets, have a collective library that includes more than 32,000 television episodes.
Universal Pictures, the producer and distributor of motion pictures, has a library of more than 5,000 films.
In the past, Mr. Immelt has said NBC did not need to expand beyond television and into the movies, even though it has been the only major broadcast network without ties to a Hollywood studio.
Since early last month, however, when the company entered into exclusive negotiations with Vivendi, G.E. has defended getting into the movie business, citing Universal Pictures' summer hits "Seabiscuit" and "2 Fast 2 Furious."
Although he has been buying and selling assets since he took over the top jobs at General Electric in September 2001, the deal with Vivendi is the biggest transaction Mr. Immelt has done.
Even so, given G.E.'s immense size, adding 80 percent of Vivendi Entertainment will not mean much to its bottom line: G.E. has said that starting in the second year after the transaction closes, the deal should add 1 cent to 2 cents a share to its earnings.
Stock market reaction to the announcement was muted. In Paris, shares of Vivendi Universal closed at 16.31 euros, up 7 euro cents. On the New York Stock Exchange this afternoon, Vivendi's American depository receipts were trading down 10 cents, to $19.11. General Electric's stock was down 35 cents, to $30.37.
Even though the bottom-line effect to General Electric will not be that big, Mr. Stirton said the deal should send a important message to investors.
"This accelerates the amount of nonfinancial services profits they will generate," he said. "That is important because one of the things investors want to see is faster growth from the businesses that are not part of G.E. Capital."
Copyright 2003 The New York Times Company
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