NBC, Vivendi Aim Higher with Merger

By | September 3, 2003 at 12:00 AM

U.S. television network NBC won Vivendi Universal’s marathon show-business auction on Tuesday with a proposed merger to create a new entertainment industry giant worth more than $40 billion.

NBC, a unit of General Electric Co., clinched exclusive negotiating rights to finalize a deal that would give it a major film studio, more cable channels and theme parks to vault the No. 1 U.S. broadcast network closer to the ranks of such global titans as Walt Disney Co. and Viacom Inc.

If the deal is completed, the new company, to be called NBC-Universal, would include Vivendi’s Universal Pictures, the Hollywood studio behind “The Hulk” and “The Mummy,” and cable television network USA, with NBC’s broadcast network and cable channels CNBC and Bravo.

“Together we have developed a plan to create an exceptional media company, which would rank among the most profitable in the U.S.,” said Vivendi Chairman and CEO Jean-Rene Fourtou.

NBC Chief Executive Bob Wright would head the new company.

Under the terms set out so far, GE would take 80 percent of NBC-Universal while Vivendi would keep 20 percent. Shareholders in the Vivendi Universal Entertainment unit would also receive a $3.8 billion “cash consideration.”

After four days of marathon sessions over the holiday weekend in the New York offices of its law firm, Weil, Gotshal & Manges, Vivendi chose NBC over a rival group led by Edgar Bronfman Jr., who sold the Universal assets to Vivendi in 2000. Two years later, he offered a package that included more than $13 billion in cash, sources familiar with the matter said.

Vivendi Chief Operating Officer Jean-Bernard Levy said the French conglomerate had achieved its goal of doing a deal that valued its U.S. entertainment assets at $14 billion, giving an overall value for the merged entity of around $42 billion.

GE shares climbed 3 percent to $30.44 on the New York Stock Exchange. Vivendi shares ended up 4.1 percent at 16.60 euros in Paris, while its American Depositary Receipts rose 8.1 percent to $18.27 in New York.

BIG BLOW FOR BRONFMAN

The decision brings an end to a long hot summer of negotiations over Vivendi’s entertainment empire that gripped the media industry and ran up huge bills for an army of advisers as some of Hollywood’s biggest egos jostled for position.

NBC had long been Vivendi’s favored choice, but Vivendi Vice Chairman Bronfman fought hard to stay in the race.

“Edgar Bronfman is bewildered,” said one source close to the auction. “But there was little hope of swaying Vivendi today.”

In the end, Vivendi had to choose between Bronfman’s offer of upfront cash to cut its debts or the prospect of a better return in the long run under an NBC deal.

NBC strengthened its hand after firming up the cash element of its deal in recent weeks. Vivendi said shareholders of Vivendi Universal Entertainment would receive $3.8 billion of “cash consideration” against a commitment by GE to issue its stock as well as a $1.6 billion debt reduction.

NBC did not specify the exact form the $3.8 billion would take. “We recognized that in order to get this deal done, there had to be more cash than we initially thought,” Wright said. “But there are lots of ways to provide that cash on our part. It could be stock, cash or assets. But we will deliver that amount at closing.”

Vivendi has said repeatedly it expected to get at least $14 billion for the assets. “When you consider our 20-plus percent stake, it’s an equity value of $42 billion,” Levy told Reuters. “We have demonstrated to our board that we have reached the target of $14 billion.”

However, there is no guarantee a final deal will be struck.

Vivendi and NBC still need to navigate a complex web of contracts and tax liabilities. But Fourtou was confident a deal could be wrapped up by the end of September.

DREAM OVER

A deal with NBC marks an end to former Vivendi Chief Executive Jean-Marie Messier’s dream of creating a global media giant to rival AOL Time Warner Inc.. Messier was ousted last year as Vivendi came close to collapsing under its debts.

Vivendi said the NBC partnership would have combined pro forma revenues of $13 billion in 2003 and earnings before interest, taxes depreciation and amortization of about $3 billion.

In an auction that lasted more than three months, NBC fought off competition from some of the media industry’s biggest players including media giant Liberty Media Corp., Hollywood’s Metro-Goldwyn-Mayer Inc. and media group Viacom.

Vivendi was advised by Citigroup and Goldman Sachs. GE and NBC were advised by Credit Suisse First Boston and AGM partners.

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