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Vivendi And NBC 'Finally' Sign Merger Agreement

by Rainier on Oct. 8, 2003 @ 9:42 a.m. PDT

Vivendi Universal and General Electric Co. have reached an agreement to merge the French company's Hollywood studio, cable TV networks and theme parks with GE's NBC business, creating a media giant with about $13 billion in annual revenue. Read more if you are interested in financial numbers & news....

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 deal will give NBC more weight in competing for audiences and advertising with bigger media heavyweights such as AOL Time Warner Inc., Viacom Inc. and Walt Disney Co. Vivendi gets help in its effort to reduce the heavy debt accumulated under former management while keeping a stake in the potential growth of the media business.

The deal capped a long and sometimes turbulent sales process which began in the spring when Vivendi said it wanted to sell assets as part of an effort to reduce debt and focus on its telecommunications businesses.

NBC beat several other potential suitors for the Universal entertainment businesses, including Viacom, Liberty Media Corp., Metro-Goldwyn-Mayer Inc. and Comcast Corp.

The new company will include the NBC television network and its cable channels CNBC, MSNBC and Bravo and Spanish-language broadcaster Telemundo as well as Vivendi's 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 smaller than AOL Time Warner's $41 billion in revenues last year or Disney's 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.

NBC has been the only major network not owned by a larger media conglomerate. Walt Disney Co. owns ABC, Viacom owns CBS 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.

Fourtou told investors in a separate call that the companies expected to get between $400 million and $500 million in synergies from the deal, including both cost savings and increased revenues.

Vivendi will get three of the 15 seats on the board of directors of the new company.

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.

Vivendi will also have the chance to begin selling its 20 percent stake in the new company starting in 2006. The companies estimated the combined media and entertainment business would be worth $43 billion, meaning a 20 percent stake would be worth about $8.6 billion.

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.

Vivendi's U.S.-listed shares were up 7 cents at $19.28 in morning trading on the New York Stock Exchnage, while GE's were off 35 cents at $30.38.

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