Comcast (CMCSA), the largest U.S. cable-television company, will start a joint venture with General Electric's (GE) s NBC Universal unit, creating an entertainment company valued at about $37 billion.
Comcast will merge cable channels worth $7.25 billion with the NBC Universal assets, valued at $30 billion, the companies said today in a statement. Comcast also will contribute $6.5 billion in cash. The cable operator will own 51% of the new entity, which Jeffrey Zucker will lead.
The deal gives Philadelphia-based Comcast the USA, CNBC, MSNBC, and Bravo cable channels, NBC's broadcast networks and stations, a film studio and amusement parks. Comcast's push into programming advanced after Vivendi (VIV.FP), France's biggest media company, moved to sell its 20% of New York-based NBC Universal for $5.8 billion. The sale marks GE's eventual exit from the media industry after more than two decades.
"New blood, new energy will be a good thing," said Bob Wright, former chairman of NBC Universal, and current senior adviser at Lee Equity Partners LLC. Comcast is "buying NBCU in the deepest, darkest moments of media. I think they are value buyers and they are good asset managers," he said.
Comcast, whose stock has declined 11% since reports of the transaction surfaced about two months ago, also said it would increase its quarterly dividend by 40%, to 9.45 cents a share from 6.75 cents.
GE, which owned 80% of NBC Universal before the deal, is getting about $8 billion in net cash for its contribution to the venture. Comcast Chief Operating Officer Stephen Burke, 51, said in September that acquiring programming was a priority. For GE, the deal marks a retreat from an industry some analysts said never fit with the 117-year-old company's industrial, finance and medical focus.
Comcast fell 2 cents to $14.94 yesterday on the Nasdaq Stock Market. The shares had dropped 11% this year before today. GE dropped 10 cents to $16.07 in New York Stock Exchange composite trading.
The new joint venture will issue about $9.1 billion in debt. The debt via the venture reduces the cash Comcast has to contribute to take control and helps get GE its payout. Comcast is contributing channels including the E! Entertainment property and the Golf Channel.
GE has owned NBC since its 1986 purchase of RCA Corp. Paris-based Vivendi, owner of Universal Music Group, obtained its stake with the sale of media assets including Universal Pictures to Fairfield, Connecticut-based GE in 2004. Vivendi CEO Jean-Bernard Levy had described NBC Universal as "non-core."
'A Better Way?'
GE will buy about 38% of Vivendi's interest for $2 billion in September if the Comcast transaction hasn't closed by then, and will acquire the rest for $3.8 billion once the deal closes, the companies said.
The accord gives GE cash to invest elsewhere at a time when CEO Jeffrey Immelt, 53, is pursuing growth in emerging markets and units he's labeled infrastructure following the global economic and financial crisis. Immelt for years resisted pressure from some shareholders to exit the media business, pointing to its cash flow and growth. Last month, he agreed to sell GE's fire and security unit to United Technologies (UTX).
"You've got to think a couple years ahead in the space and ask: ‘Might there be partnerships to run the company in a better way?'" Immelt said of NBC Universal at an Oct. 20 event in San Francisco. "In this case, we've got all the options."
Immelt said in today's statement that NBC had generated an average annual return for GE of about 11%. GE is the world's biggest maker of jet engines, locomotives and medical—imaging machines. Its power-generation equipment produces about one-third of the world's electricity, and its GE Capital finance arm lends to consumers and companies.
Opposition to Deal
Advocacy group Free Press in Washington reiterated today that it would ask regulators to block an NBC sale to Comcast because the cable operator would have too much power over what viewers see.
Obama administration regulators have said they will aggressively investigate whether mergers stifle competition.
They may impose conditions on the deal that ultimately makes it unattractive to Comcast, said analyst Craig Moffett, at Sanford C. Bernstein &Co. in New York.
Conditions could be drafted to weaken Comcast's bargaining position when dealing with TV-program owners, Moffett said. In addition, satellite competitors including Dish Network Corp. may pressure regulators to force Comcast to share its Philadelphia regional sports programming, which it currently holds exclusively. The merger may take about a year to pass regulatory muster, Moffett said.
Comcast doesn't plan to divest any assets to win regulatory approval for the combination, two people familiar with the matter said yesterday.