General Electric Co.'s NBC television unit reached a final agreement to buy Vivendi Universal SA's U.S. media assets, giving NBC a Hollywood studio and three cable networks and doubling its sales to $13 billion.
General Electric and Vivendi have been in exclusive talks since Sept. 2, when they announced a preliminary agreement. The new company, to be called NBC Universal, combines NBC's broadcast networks and cable channels such as CNBC with Universal's film and TV production studios and theme parks, GE and Vivendi said in a statement on Business Wire. The transaction values the Vivendi assets at about $14 billion, NBC said last month.
The acquisition will give NBC control over both distribution and programming, from producing movies and TV shows to airing them on networks. New York-based NBC, facing slowing growth and the loss of its popular ``Friends'' sitcom, will gain a bigger foothold in cable, which is luring viewers from broadcast TV.
``This puts an end to the uncertainty in the market,'' about the agreement being signed, said Matthieu Giuliani, who helps manage $4.2 billion at Sanpaolo IMI Asset Management in Paris and owns Vivendi shares. ``This is one more bit of good news, to have finally signed a good agreement. It goes in the right direction.''
The companies have identified $400 million to $500 million in ``potential synergies, including both cost savings and revenue growth,'' the companies said in the statement.
Vivendi shares climbed as much as 46 cents, or 2.8 percent, to 16.70 euros, and traded at 16.59 euros at 9:44 a.m. in Paris. Shares of Fairfield, Connecticut-based General Electric fell 6 cents to $30.73 on Tuesday in New York Stock Exchange composite trading.
Debt Reduction
For Paris-based Vivendi, the sale represents a step toward dismantling the debt-laden media empire assembled by former Chief Executive Jean-Marie Messier. Vivendi, which will be a minority partner in the new company, will focus on its phone and French pay-TV units. It also retains ownership of Universal Music Group, the world's largest record company.
Vivendi owns 86 percent of the U.S. unit, called Vivendi Universal Entertainment, with minority partners including Matsushita Electric Industrial Co. and Barry Diller and his InterActiveCorp holding the rest.
NBC Chief Executive Robert Wright will head the new company. As a minority partner, Vivendi will get three seats on the NBC Universal board.
Diller
Under terms of the agreement, General Electric will assume $1.7 billion of debt and commit to issuing about $3.8 billion of stock in exchange for 80 percent of the combined company.
Vivendi will get the other 20 percent and $3.3 billion in cash through a transaction allowing it to borrow against General Electric's commitment to issue shares.
Vivendi had said it will begin talks with Diller about his stake after reaching agreement with General Electric. Diller, who supports the deal, and his company hold 6.9 percent of the unit.
NBC Universal will join the ranks of the largest media companies that control most aspects of their business. Media executives argue that they need to operate on a large scale to gain leverage in negotiations over programming and license fees.
AOL Time Warner Inc., with $41.4 billion in sales last year, is about three times NBC Universal's size. ABC-TV owner Walt Disney Co. and CBS-TV owner Viacom Inc. are almost twice NBC Universal's size. Disney had $25.3 billion in sales in its 2002 fiscal year; Viacom had $24.6 billion.
By adding more cable networks to its portfolio, NBC may improve its bargaining position with cable- and satellite-TV providers such as Comcast Corp. and Hughes Electronics Corp.'s DirecTV, which serve as gatekeepers to an increasing number of homes, analysts said.
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NBC will gain three cable networks -- USA, the Sci Fi Channel and Trio -- as well as the three ``Law & Order'' crime- drama series, anchors to NBC's prime-time programming. The ``Law & Order'' shows are typically the most-watched shows on their nights and rank among the top 20 programs each week.
The agreement gives NBC access to Universal's library of more than 5,000 movies, which could be used to drive DVD sales and video-on-demand services that allow viewers to watch movies and shows when they want.
The combined company also will own 32,000 TV episodes. NBC said it could use that programming on its cable channels or license it to other networks.
For NBC, which started as a radio network 77 years ago, the deal has a couple of question marks. One is its inheritance of Universal's stakes in five theme parks. The parks' revenue has fallen in the past two years amid a drop in tourism, leading some analysts to predict NBC will look to sell the unit. NBC has said it hasn't made a decision on that yet.
Hollywood
It's also unclear how comfortable General Electric will be operating a movie studio. Making movies is perceived as riskier and more volatile than other media businesses because studios sometimes gamble $100 million or more on a single picture in hopes of producing a hit.
General Electric Chief Executive Jeffrey Immelt had said NBC didn't need to expand beyond television and into movies, even though it has been the only major broadcast network without ties to a Hollywood studio.
Seabiscuit
In the last five weeks, though, since the two companies entered exclusive negotiations, General Electric has defended the idea of its getting into film, citing Universal Pictures' solid track record and the summer hits ``Seabiscuit'' and ``2 Fast 2 Furious.'' General Electric has also downplayed the risks by saying the film business will account for only about 10 percent of NBC Universal's revenue.
The Vivendi transaction, which needs regulatory clearance, would be Immelt's largest purchase since he took over in September 2001.
General Electric has said the transaction should add 1 cent to 2 cents per share to earnings starting in the second year.
``I have felt that if GE could consummate a deal whereby there was no per-share dilution and without a significant cash outlay, the transaction would be modestly favorable to GE shares,'' Jeff Graff, an analyst with Victory Capital Management, said before the agreement was announced. Victory Capital holds 28 million General Electric shares. ``They appear to have been successful on both fronts,'' Graff said.
Vivendi
Vivendi is selling its U.S. entertainment assets, the company's second-biggest business, to cut debt amassed when former CEO Messier transformed a water utility into a global entertainment company.
His successor, Jean-Rene Fourtou, has been selling assets after a series of acquisitions and share buybacks almost led to the company's collapse. Fourtou has pledged to shed $16 billion of assets by the end of 2004.
The agreement with NBC leaves Vivendi with a stake in the entertainment business rather than selling outright for cash. Vivendi turned down other bidders, including an investor group led by former Seagram CEO Edgar Bronfman Jr., who offered more cash up front.
Vivendi is betting that the businesses it's selling will rise in value under General Electric's management, allowing the company to liquidate its stake at a potentially higher value in the future, analysts said.
General Electric and Vivendi have been in exclusive talks since Sept. 2, when they announced a preliminary agreement. The new company, to be called NBC Universal, combines NBC's broadcast networks and cable channels such as CNBC with Universal's film and TV production studios and theme parks, GE and Vivendi said in a statement on Business Wire. The transaction values the Vivendi assets at about $14 billion, NBC said last month.
The acquisition will give NBC control over both distribution and programming, from producing movies and TV shows to airing them on networks. New York-based NBC, facing slowing growth and the loss of its popular ``Friends'' sitcom, will gain a bigger foothold in cable, which is luring viewers from broadcast TV.
``This puts an end to the uncertainty in the market,'' about the agreement being signed, said Matthieu Giuliani, who helps manage $4.2 billion at Sanpaolo IMI Asset Management in Paris and owns Vivendi shares. ``This is one more bit of good news, to have finally signed a good agreement. It goes in the right direction.''
The companies have identified $400 million to $500 million in ``potential synergies, including both cost savings and revenue growth,'' the companies said in the statement.
Vivendi shares climbed as much as 46 cents, or 2.8 percent, to 16.70 euros, and traded at 16.59 euros at 9:44 a.m. in Paris. Shares of Fairfield, Connecticut-based General Electric fell 6 cents to $30.73 on Tuesday in New York Stock Exchange composite trading.
Debt Reduction
For Paris-based Vivendi, the sale represents a step toward dismantling the debt-laden media empire assembled by former Chief Executive Jean-Marie Messier. Vivendi, which will be a minority partner in the new company, will focus on its phone and French pay-TV units. It also retains ownership of Universal Music Group, the world's largest record company.
Vivendi owns 86 percent of the U.S. unit, called Vivendi Universal Entertainment, with minority partners including Matsushita Electric Industrial Co. and Barry Diller and his InterActiveCorp holding the rest.
NBC Chief Executive Robert Wright will head the new company. As a minority partner, Vivendi will get three seats on the NBC Universal board.
Diller
Under terms of the agreement, General Electric will assume $1.7 billion of debt and commit to issuing about $3.8 billion of stock in exchange for 80 percent of the combined company.
Vivendi will get the other 20 percent and $3.3 billion in cash through a transaction allowing it to borrow against General Electric's commitment to issue shares.
Vivendi had said it will begin talks with Diller about his stake after reaching agreement with General Electric. Diller, who supports the deal, and his company hold 6.9 percent of the unit.
NBC Universal will join the ranks of the largest media companies that control most aspects of their business. Media executives argue that they need to operate on a large scale to gain leverage in negotiations over programming and license fees.
AOL Time Warner Inc., with $41.4 billion in sales last year, is about three times NBC Universal's size. ABC-TV owner Walt Disney Co. and CBS-TV owner Viacom Inc. are almost twice NBC Universal's size. Disney had $25.3 billion in sales in its 2002 fiscal year; Viacom had $24.6 billion.
By adding more cable networks to its portfolio, NBC may improve its bargaining position with cable- and satellite-TV providers such as Comcast Corp. and Hughes Electronics Corp.'s DirecTV, which serve as gatekeepers to an increasing number of homes, analysts said.
More Content
NBC will gain three cable networks -- USA, the Sci Fi Channel and Trio -- as well as the three ``Law & Order'' crime- drama series, anchors to NBC's prime-time programming. The ``Law & Order'' shows are typically the most-watched shows on their nights and rank among the top 20 programs each week.
The agreement gives NBC access to Universal's library of more than 5,000 movies, which could be used to drive DVD sales and video-on-demand services that allow viewers to watch movies and shows when they want.
The combined company also will own 32,000 TV episodes. NBC said it could use that programming on its cable channels or license it to other networks.
For NBC, which started as a radio network 77 years ago, the deal has a couple of question marks. One is its inheritance of Universal's stakes in five theme parks. The parks' revenue has fallen in the past two years amid a drop in tourism, leading some analysts to predict NBC will look to sell the unit. NBC has said it hasn't made a decision on that yet.
Hollywood
It's also unclear how comfortable General Electric will be operating a movie studio. Making movies is perceived as riskier and more volatile than other media businesses because studios sometimes gamble $100 million or more on a single picture in hopes of producing a hit.
General Electric Chief Executive Jeffrey Immelt had said NBC didn't need to expand beyond television and into movies, even though it has been the only major broadcast network without ties to a Hollywood studio.
Seabiscuit
In the last five weeks, though, since the two companies entered exclusive negotiations, General Electric has defended the idea of its getting into film, citing Universal Pictures' solid track record and the summer hits ``Seabiscuit'' and ``2 Fast 2 Furious.'' General Electric has also downplayed the risks by saying the film business will account for only about 10 percent of NBC Universal's revenue.
The Vivendi transaction, which needs regulatory clearance, would be Immelt's largest purchase since he took over in September 2001.
General Electric has said the transaction should add 1 cent to 2 cents per share to earnings starting in the second year.
``I have felt that if GE could consummate a deal whereby there was no per-share dilution and without a significant cash outlay, the transaction would be modestly favorable to GE shares,'' Jeff Graff, an analyst with Victory Capital Management, said before the agreement was announced. Victory Capital holds 28 million General Electric shares. ``They appear to have been successful on both fronts,'' Graff said.
Vivendi
Vivendi is selling its U.S. entertainment assets, the company's second-biggest business, to cut debt amassed when former CEO Messier transformed a water utility into a global entertainment company.
His successor, Jean-Rene Fourtou, has been selling assets after a series of acquisitions and share buybacks almost led to the company's collapse. Fourtou has pledged to shed $16 billion of assets by the end of 2004.
The agreement with NBC leaves Vivendi with a stake in the entertainment business rather than selling outright for cash. Vivendi turned down other bidders, including an investor group led by former Seagram CEO Edgar Bronfman Jr., who offered more cash up front.
Vivendi is betting that the businesses it's selling will rise in value under General Electric's management, allowing the company to liquidate its stake at a potentially higher value in the future, analysts said.
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