NBC Universal leaves options open

IPO or another partnership under discussion

NEW YORK -- General Electric chairman and CEO Jeffrey Immelt left his firm's options for the future of NBC Universal open Friday. GE is focusing on possible partnerships, such as one being discussed with Comcast Corp., or an IPO in case Vivendi decides, as is widely expected, to sell its 20% stake in the entertainment company, he told reporters during an appearance in New Delhi.

"Discussions are ongoing whether it is an IPO or another partnership," said Immelt, according to Reuters.

That also left open the possibility of another potential suitor swooping in, even though most major entertainment players have ruled themselves out, including Time Warner. TW CEO Jeff Bewkes said Friday in Washington that he's not interested in making a bid.

John Malone's Liberty Media, which had previously looked at NBC Uni, hasn't commented on its intentions this week.

Some on the Street took Immelt's comments as the clearest public GE signal to date that the industrial conglomerate is ready to seriously consider a slow exit -- as a Comcast deal could provide -- from its entertainment arm, which has been repeatedly suggested in the past.

Immelt's comments came as Wall Street continued Friday to discuss the fallout from a possible combination of Comcast's cable networks with NBC Uni in a new privately held company, of which the cable giant would control 51%.

Several analysts mentioned why such a structure would make sense for GE, highlighting that an outright sale of NBC Uni would lead to tax burdens.

Sanford C. Bernstein analysts in a new report Friday said the leaked outlines of a possible deal also indicate that the industrial conglomerate would get a healthy valuation premium of about 30% for NBC Uni, compared to the likes of Time Warner, Disney and News Corp., despite the historically still-low valuations of many media assets.

While Comcast would under the currently discussed deal terms only make a smaller-than-feared cash payment of $4 billion-$7 billion, its shareholders would fret the price premium and a deferral of a higher dividend or stock buybacks, according to the Bernstein analysts. "Moreover, the deal would leave in place the overhang of further deal making since the prospect of buying in the other 49% would linger indefinitely," they wrote.

Bernstein estimates a combined entity's 2010 earnings at $1.5 billion with $3.5 billion in operating cash flow. By 2013, those figures could rise to nearly $2 billion and $4.5 billion, respectively, according to Bernstein.

The Street on Friday also weighed in on the potential regulatory hurdles for a Comcast deal, with some predicting a close review that could lead to various restricting conditions.

While there are no major FCC rules that a deal would run counter to, the Justice Department would likely hear antitrust concerns from critics of media concentration, and the FCC could also require conditions. As the largest U.S. cable operator, Comcast had about 23.9 million video subscribers as of June 30.

"A new administration in Washington would possibly want to make its mark on the recently booming M&A market and demonstrate that it will not easily rubber-stamp mergers, horizontal or vertical," said Miller Tabak analyst David Joyce. He also argued that the combination of a studio and cable giant "could be problematic due to the recent revival of concern over fair and nondiscriminatory program access," which could lead the FCC to seek conditions to ensure that indie programmers don't get blocked out.

The Bernstein analysts predicted that a deal would "likely bring with it a heavy regulatory burden, including likely arbitration provisions in the event of programming disputes, possible divestitures of broadcast stations in Comcast markets and an unforeseeable range of seemingly unrelated "Christmas tree ornament" provisions that would likely festoon the final deal (like net neutrality etc)." Their bottom line: "Regulatory provisions could more than offset any potential gains."
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