09.01.2003 12:00 PM
NBC given good chance in proposed Vivendi deal

After being selected by Vivendi Universal Entertainment last week as one of two remaining bidders to acquire the entertainment conglomerate, NBC has emerged as the front runner. The other prospective buyer is an investor group controlled by a previous owner, Edgar Bronfman Jr.

NBC’s proposal is to form a partnership that would combine NBC with Universal’s entertainment assets, which include film and television studios, the USA and Sci-Fi cable channels, and an interest in the Universal theme park business. The assets include the Universal Music business, though the music company is not for sale.

If NBC’s partnership scenario is chosen, the network would pay Vivendi very little cash. However, many analysts think an NBC-Vivendi merger would create a company better able to compete with other large media companies like Viacom, Disney, and News Corp. because it would add a motion picture studio, television production studio, cable channels and theme parks to NBC’s broadcast holdings.

The combination would also give NBC an upper hand in programming since it would assume control of the roster of television programs produced by Universal, including the three hit “Law and Order” series now seen on NBC.

The proposal by Bronfman’s group involves a cash purchase of $14 billion for a majority stake in Vivendi. While Vivendi executives did not indicate which approach they favor, several media analysts give NBC the best chance of success because its offer would probably be seen as more attractive to Vivendi’s executives and shareholders.

“The NBC bid makes the most sense because it offers the greatest synergies and greatest long-term return for Vivendi Universal’s stockholders,” said David W. Healy, a specialist in mergers and acquisitions at the law firm of Fenwick & West in Mountain View, Calif, in an interview with the New York Times.

Healy said NBC’s ability to combine the distribution power of its broadcast stations and cable channels with Universal’s media assets make such a merger a natural fit. In an unusual move, however, Bronfman—who is not only a perspective buyer but the co-founder of Vivendi Universal—issued a public warning after Vivendi narrowed the bidders that an NBC merger would be “exactly the wrong outcome” for Vivendi’s shareholders.

Bronfman, in an interview with London’s Financial Times, argued that a merger with NBC would leave the French company in the same strategic limbo in which it has languished for more than a year.

“The share price hasn’t moved for a reason: no one knows where they’re going,” said Bronfman, who is still vice-chairman of Vivendi and will return to the board at the end of the auction. “No one will be willing to buy into Vivendi because it would still be such a complicated story—still entertainment, still telecoms, still this, still that.”

Bronfman said he doubts Vivendi shareholders will see synergies in a merger with the network. “NBC has never run a studio, an entertainment cable network or a theme park,” he said. “It would be a huge leap of faith towards a goal which is the wrong one to begin with, namely more entertainment rather than less.”

However, Michael Nathanson, a media analyst at Sanford C. Bernstein & Company, told the New York Times he doubted that a Bronfman offer could prevail. “There have been other bidders with greater opportunities to find cost-cutting or revenue-enhancing strategies,” he said, “including Liberty Media, Viacom and MGM, and they bowed out because the economics did not work. I have a hard time imagining that the Bronfman group could offer near what Vivendi wants.”

Another bonus for NBC, several analysts said, is the high regard in Europe for its parent company, General Electric. When G.E. bought NBC in 1986, its ability to manage a media company was questioned because of its reputation for promising shareholders steady growth. But NBC has prospered under its chairman, Robert C. Wright, who has led NBC since G.E. bought the network.

For 2003, NBC is projecting a record operating profit of $1.9 billion, which would make it one of the two most successful units of G.E. for a second year. The other is GE Power Systems, which makes gas-turbine engines.

Thus far NBC has made no public comment on the Vivendi sale.

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