Birth of a conglomerate: NBC Uni deal closes
NBC Universal deal officially done: media titan born
May 12, 2004
NEW YORK -- As the merger of NBC and Vivendi Universal Entertainment officially closed Wednesday, the new NBC Universal joined the exclusive ranks of media and entertainment titans. Chairman and CEO Robert Wright said the combination presented a "tremendous growth opportunity for our viewers, advertisers, employees, and GE shareowners."
"It will be the fifth-largest media conglomerate," Guzman & Co. analyst David Joyce said. "The merger will allow the company to compete more effectively using its broader array of assets."
NBC Universal will include the Universal Pictures film studio; NBC and Telemundo broadcast networks; TV studio Universal Television, whose hit shows include NBC's "Law & Order" franchise; cable networks CNBC, MSNBC, USA Network, Sci Fi Channel, Bravo and Trio; as well as interests in the Universal theme parks.
Longtime media investor and analyst Hal Vogel, head of Vogel Capital Management, said the merged entity will be able to leverage its scale by, for example, more aggressively using and cross-promoting content or negotiating better carriage deals with cable and satellite distributors.
"They can also control their production and distribution costs by controlling 'Law & Order' and other important shows," Vogel said.
Under the terms of the deal, which were finalized in October, NBC parent General Electric is set to give shareholders in VUE $3.8 billion in cash consideration coming from newly issued GE shares plus a 20% stake in the new media group. In addition, NBC Universal will assume $1.7 billion in Vivendi debt.
This will leave GE with an 80% stake in NBC Universal. Vivendi Uni, which so far controlled 86% of VUE, will own slightly less than 20% and get about $3.3 billion of the total cash consideration.
Wall Street favorite Wright, vice chairman of GE and chairman and CEO of NBC, will head the merged entity, with his top lieutenants taking on expanded responsibilities.
NBC Universal's mix of entertainment properties is closer to the Walt Disney Co. and Viacom than to that of other industry titans, such as Time Warner or News Corp., industry observers say. The company's portfolio includes 29 NBC and Telemundo O&Os, but NBC Universal still lacks real heft in the distribution business, which News Corp. recently obtained with its takeover of satellite TV giant DirecTV, and which TW has thanks to its TW Cable unit.
And while NBC Universal will join the realm of entertainment giants, it will be dwarfed by its peers on various financial metrics.
For example, NBC and VUE on a combined basis posted 2003 revenue of $14.2 billion when using foreign exchange rates at the time VUE reported its full-year results, which it has so far done in euros. By comparison, TW recorded 2003 revenue of $39.6 billion and Viacom posted $26.6 billion. Disney brought in $27.1 billion in revenue for its latest fiscal year, which ended Sept. 30. News Corp., which also has a different fiscal year, had $19.2 billion in revenue for calendar year 2003.
Similarly, analysts have put an enterprise value of at least $42 billion on the merged NBC-VUE. According to Guzman & Co.'s Joyce, TW's enterprise value lies at about $100 billion, Viacom's at $76 billion, Disney's at $59 billion and News Corp.'s at $57 billion.
In typical Wall Street fashion, some have in recent months mentioned NBC Universal as a potential acquirer of MGM, cable operators like bankrupt Adelphia Communications or other companies that may come to market down the line given that the new firm is still smaller than some peers.
Said one Street observer: "They look in pretty good shape for now," adding that "GE tends to be conservative and take its time. They will make this deal work first and then maybe consider additional deals later" if some interesting asset becomes available.
Vogel said that while the Wall Street-type GE culture is very different from the "more freewheeling" Hollywood culture, "the GE and NBC executives are known to be very good business managers." So while the two sides may need some more time to be fully comfortable with each other, "this deal should work well overall," Vogel said.
"This transaction gives Vivendi Universal a 20% ownership interest in NBC Universal and at the same time enables us to record a total net debt reduction of approximately $6 billion," Jean-Rene Fourtou, chairman and CEO of Vivendi Universal, said in a statement announcing the deal's closing Wednesday.
Most observers expect Vivendi Uni to be a mainly quiet 20% shareholder in NBC Universal. One thing that Wall Street observers want some more details on from key executives is the expected efficiencies from the NBC Universal deal.
Merrill Lynch analyst Jessica Reif Cohen has put the possible synergies from the combination at $400 million-$500 million, with about two-thirds coming from cost cuts, according to her estimates. While industry talk of the likely number of layoffs has ranged to 400, one source said Tuesday that the major postmerger downsizing will affect about 200-300 people.
However well NBC Universal ends up doing, investors will for now not get a chance to invest in the firm directly. "VUE and NBC have so far been deeply buried inside of larger conglomerates," said Joyce, and the merged firm will not get a separate stock listing for either for now.
That could happen in 2006 at the earliest as Vivendi Uni can start selling its 20% stake then.
"It will be the fifth-largest media conglomerate," Guzman & Co. analyst David Joyce said. "The merger will allow the company to compete more effectively using its broader array of assets."
NBC Universal will include the Universal Pictures film studio; NBC and Telemundo broadcast networks; TV studio Universal Television, whose hit shows include NBC's "Law & Order" franchise; cable networks CNBC, MSNBC, USA Network, Sci Fi Channel, Bravo and Trio; as well as interests in the Universal theme parks.
Longtime media investor and analyst Hal Vogel, head of Vogel Capital Management, said the merged entity will be able to leverage its scale by, for example, more aggressively using and cross-promoting content or negotiating better carriage deals with cable and satellite distributors.
"They can also control their production and distribution costs by controlling 'Law & Order' and other important shows," Vogel said.
Under the terms of the deal, which were finalized in October, NBC parent General Electric is set to give shareholders in VUE $3.8 billion in cash consideration coming from newly issued GE shares plus a 20% stake in the new media group. In addition, NBC Universal will assume $1.7 billion in Vivendi debt.
This will leave GE with an 80% stake in NBC Universal. Vivendi Uni, which so far controlled 86% of VUE, will own slightly less than 20% and get about $3.3 billion of the total cash consideration.
Wall Street favorite Wright, vice chairman of GE and chairman and CEO of NBC, will head the merged entity, with his top lieutenants taking on expanded responsibilities.
NBC Universal's mix of entertainment properties is closer to the Walt Disney Co. and Viacom than to that of other industry titans, such as Time Warner or News Corp., industry observers say. The company's portfolio includes 29 NBC and Telemundo O&Os, but NBC Universal still lacks real heft in the distribution business, which News Corp. recently obtained with its takeover of satellite TV giant DirecTV, and which TW has thanks to its TW Cable unit.
And while NBC Universal will join the realm of entertainment giants, it will be dwarfed by its peers on various financial metrics.
For example, NBC and VUE on a combined basis posted 2003 revenue of $14.2 billion when using foreign exchange rates at the time VUE reported its full-year results, which it has so far done in euros. By comparison, TW recorded 2003 revenue of $39.6 billion and Viacom posted $26.6 billion. Disney brought in $27.1 billion in revenue for its latest fiscal year, which ended Sept. 30. News Corp., which also has a different fiscal year, had $19.2 billion in revenue for calendar year 2003.
Similarly, analysts have put an enterprise value of at least $42 billion on the merged NBC-VUE. According to Guzman & Co.'s Joyce, TW's enterprise value lies at about $100 billion, Viacom's at $76 billion, Disney's at $59 billion and News Corp.'s at $57 billion.
In typical Wall Street fashion, some have in recent months mentioned NBC Universal as a potential acquirer of MGM, cable operators like bankrupt Adelphia Communications or other companies that may come to market down the line given that the new firm is still smaller than some peers.
Said one Street observer: "They look in pretty good shape for now," adding that "GE tends to be conservative and take its time. They will make this deal work first and then maybe consider additional deals later" if some interesting asset becomes available.
Vogel said that while the Wall Street-type GE culture is very different from the "more freewheeling" Hollywood culture, "the GE and NBC executives are known to be very good business managers." So while the two sides may need some more time to be fully comfortable with each other, "this deal should work well overall," Vogel said.
"This transaction gives Vivendi Universal a 20% ownership interest in NBC Universal and at the same time enables us to record a total net debt reduction of approximately $6 billion," Jean-Rene Fourtou, chairman and CEO of Vivendi Universal, said in a statement announcing the deal's closing Wednesday.
Most observers expect Vivendi Uni to be a mainly quiet 20% shareholder in NBC Universal. One thing that Wall Street observers want some more details on from key executives is the expected efficiencies from the NBC Universal deal.
Merrill Lynch analyst Jessica Reif Cohen has put the possible synergies from the combination at $400 million-$500 million, with about two-thirds coming from cost cuts, according to her estimates. While industry talk of the likely number of layoffs has ranged to 400, one source said Tuesday that the major postmerger downsizing will affect about 200-300 people.
However well NBC Universal ends up doing, investors will for now not get a chance to invest in the firm directly. "VUE and NBC have so far been deeply buried inside of larger conglomerates," said Joyce, and the merged firm will not get a separate stock listing for either for now.
That could happen in 2006 at the earliest as Vivendi Uni can start selling its 20% stake then.
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