Cable company Comcast Corp. (CMCSA,CMCSK) and diversified conglomerate General Electric Co. (GE) announced Thursday that they have agreed to form a joint-venture to create a leading entertainment company valued at about $37.25 billion. The joint venture, which will be managed by Comcast, will be 51% owned by Comcast and 49% by GE. The biggest media deal of the year will give Comcast control of GE's media business NBC Universal, which itself is valued at $30 billion.
In a statement, Comcast's Chairman and Chief Executive Officer Brian Roberts said, "This deal is a perfect fit for Comcast and will allow us to become a leader in the development and distribution of multiplatform 'anytime, anywhere' media that American consumers are demanding. In particular, NBCU's fast-growing, highly profitable cable networks are a great complement to our industry-leading distribution business."
The proposed joint venture is positioned to lead the next phase of media industry's evolution by building on its diverse cable portfolio, accelerating digital offerings and expanding customer choice, and will deliver strong cash flow with conservative capital structure.
In the transaction, for its 51% ownership in the JV, Comcast will pay GE $6.5 billion in cash and additionally would contribute to the JV cable channels including E! Entertainment, Versus and the Golf Channel, its ten regional sports networks, and certain digital media properties collectively valued at $7.25 billion. The $6.5 billion in cash payment is subject to certain adjustments based on various events between signing and closing.
Meanwhile, GE would contribute the $30 billion valued NBC Universal business, including its cable networks, filmed entertainment, televised entertainment, theme parks, and unconsolidated investments. The contribution is subject to NBC Universal borrowing about $9.1 billion from third-party lenders and giving the cash to GE.
The joint venture deal, which would see GE reducing its ownership stake in NBC Universal to 49% from 80%, will generate for it about $8 billion of cash at closing, after paying down the existing NBC Universal debt and transaction fees, with an expected small after-tax gain.
Comcast would have the option to buy out GE's 49% minority stake in the joint venture at 3.5-year and 7-year intervals. NBC Universal Chief Executive Officer Jeff Zucker would continue as the chief of the new joint venture company, and will report to Comcast Chief Operating Officer Steve Burke, with the new entity remaining headquartered at New York. The joint venture board will have three directors nominated by Comcast and two nominated by GE.
The transaction has the approval of the Board of Directors of GE and Comcast, but is subject to receipt of various regulatory approvals and other customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and approvals of the Federal Communications Commission and certain international agencies.
Meanwhile, NBC Universal has obtained $9.85 billion of committed financing through a consortium of banks led by J.P. Morgan, Goldman Sachs, Morgan Stanley, BofA Merrill Lynch and Citi. The financing is expected to receive solid investment-grade ratings from S&P and Moody's.
Comcast also noted that it has created Comcast Entertainment Group, which would house Comcast's interest in the GE-Comcast joint venture, and will stand alongside Comcast Cable, which operates the company's traditional cable business.
"The combination of Comcast's cable and regional sports networks and digital media properties and NBCU will deliver strong returns for GE shareholders and business partners. NBCU has been a great business for GE over the past two decades. We have generated an average annual return of 11 percent, while expanding into cable, movies, parks and international media. We are reducing our ownership stake from 80 percent to 49 percent of a more valuable entity," Jeff Immelt, GE chairman and chief executive officer added.
Separately, Comcast announced that the planned annual dividend has increased 40% to $0.378 per share. Subsequently, the company increased the quarterly dividend to $0.0945 per share from $0.0675 per share on the company's common stock, payable on January 27, to shareholders of record as of the close of business on January 6, 2010. Additionally, Comcast announced the intention to complete its $3.6 billion share repurchase authorization over the next 36 months.
In a separate release, French media and telecommunications company Vivendi SA (VIVEF.PK) said it has simultaneously agreed to sell its 20% stake in NBC Universal to GE, which is valued at US$5.8 billion. Following the sale, Vivendi will not hold any stake in the GE-Comcast joint venture.
The GE-Comcast deal hinged on Vivendi, also the owner of Universal Music Group, selling its 20% stake in NBC Universal to GE. Vivendi could have simply refused to sell the minority stake. It also has the right, negotiated as part of the 2004 merger that created NBC Universal, to force a public offering of its 20% stake during an annual option to sell its stake in NBC between November 15 and December 10 every year.
GE and Vivendi have spent weeks of negotiations over the value of Vivendi's stake in NBC Universal. At one stage, talks between the two companies reportedly seemed near collapse, with the two sides being as much as $1 billion apart.
Commenting on the Vivendi-GE deal, Chairman of the Vivendi Management Board Jean-Bernard Levy said, "Vivendi is happy to contribute to the creation of a major player in the world of television, film and theme parks. I would like to thank everyone we have worked with on the NBC Universal team for the last 10 years. This transaction is in line with Vivendi's strategic objectives and is in the best interests of its shareholders."
However, if the GE-Comcast deal is not closed by September 2010, Vivendi will sell a 7.66% stake of NBC Universal to GE for US$2 billion, while the balance 12.34% stake will be sold for US$3.8 billion to GE upon completion of the GE-Comcast deal. In case the joint venture deal is not completed, Vivendi would launch an accelerated initial public offering of its remaining 12.34% stake in NBC Universal.
Meanwhile, Vivendi will continue to receive quarterly dividends from NBC Universal between now and the completion of the GE-Comcast deal. GE has agreed to make transaction payments to Vivendi to the extent that NBC Universal's 2010 dividend payments to Vivendi are less than $268 million.
GE closed Wednesday's regular trading session at $16.07, down $0.05 on a volume of 65.19 million shares, lower than the three-month average volume of 99.93 million shares. In the past 52-week period, the stock has been trading in a range of $5.87 to $19.30.
CMCSA closed at $14.94, up $0.01 on a volume of 18.13 million shares, lower than the three-month average volume of 25.29 million shares. In the past 52-week period, the stock has been trading in a range of $11.10 to $18.10.
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