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NBC and Universal Studios to Merge

Vivendi Universal and General Electric Co. have agreed to merge the French company’s Hollywood studio and other U.S. entertainment assets with GE’s television network NBC, creating a media giant with an estimated value of $43 billion.

The terms of the deal announced Wednesday were largely unchanged from a preliminary agreement reached a month ago, when the two companies entered exclusive talks about a merger and sketched out broad outlines for a combined company to be called NBC Universal.

The new company will include the NBC television network and its cable channels CNBC, MSNBC and Bravo and Spanish-language broadcaster Telemundo.

From the Vivendi side, the new company will get the Universal movie and TV studios – which already make NBC’s hit show “Law & Order” – plus the USA, Sci-Fi and Trio cable channels and several theme parks.

Universal Music Group, the largest music company, is not part of the deal and will be retained by Vivendi.

The newly created company will have about $13 billion in annual revenues, making it a sizable competitor in the media field but still much smaller than industry giants like AOL Time Warner Inc., which had $41 billion in revenues last year, and Walt Disney Co., which had revenues of $25 billion.

NBC will own 80 percent of the new entity, with the remaining 20 percent controlled by Vivendi. NBC Universal will be led by Bob Wright, vice chairman of GE and chairman and chief executive of NBC, the companies said.

The combination requires regulatory approvals in Washington and Brussels, but is expected to be finalized in the first half of 2004, Vivendi executives said.

The deal will give NBC more weight in an industry dominated by companies like AOL Time Warner and Viacom Inc., which owns MTV and CBS. NBC has been the only major network not owned by a larger media conglomerate. Walt Disney Co. owns ABC and News Corp. owns Fox.

For Vivendi, the deal offers an opportunity to trim back debts – which totaled $13 billion at the end of July – run up during a buying spree under former chief executive Jean-Marie Messier.

The companies’ decision to enter exclusive talks last month marked the end of a long-running auction, with at least five other companies showing interest in the U.S.-based entertainment empire.

The deal will allow Vivendi to pair up its limited U.S. television assets with the NBC empire.

Vivendi’s chairman Jean-Rene Fourtou told reporters in a conference call Wednesday that its U.S. TV holdings “were too small to be really competitive on the American television scene.” He said Vivendi Universal had been having trouble negotiating contracts for the channels.

NBC is paying $3.8 billion in cash as part of the deal. Vivendi, an 86 percent shareholder of the Vivendi Universal Entertainment, will get $3.3 billion of that cash – which will enhance Fourtou’s debt-reduction program.

In addition, NBC will take on $1.7 billion of Vivendi’s debt, slightly above the $1.6 billion initially announced in September.

Fourtou said the merger would allow Vivendi to reduce debt to $5 billion and be a profitable company by the end of 2004.

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