Comcast Corp struck a deal to buy a majority stake in NBC Universal from General Electric Co, creating a media superpower that would control not just how television shows and movies are made, but how they are delivered to the home.
The deal had been discussed for months and brought to light deep divisions over the future of the media business, with some lauding Comcast Chief Executive Officer Brian Roberts as a visionary and others calling it the most foolhardy acquisition since AOL bought Time Warner in 2001.
In a world where the Internet has disrupted traditional media, Comcast wants NBC Universal so it can deliver programming to audiences however they may want it -- through TV sets, personal computers or mobile devices. Not only is Comcast the largest US cable distributor, it also is the leading Internet service provider to homes.
But critics of the deal, including some Comcast investors, suggest there is too little overlap between the businesses to draw out meaningful savings, and that competition regulators are bound to burden it with restrictions.
Moreover, big media deals rarely work, they say, pointing to Time Warner Inc's breakup as an example. Once the world's biggest media company, Time Warner has spun off Time Warner Cable Inc and will soon do the same with AOL.
“There's no question that you really have a great little test tube here because you have one large company that said this is absolutely not the thing to do,” said veteran media dealmaker Barry Diller, CEO of IAC/InterActive Corp.
“And you have another company that said it's exactly the thing to do,” he told the Reuters Global Media Summit. “So it's going to be an interesting comparison over time.”
Comcast's shares have fallen 11% since reports of the deal talks first surfaced in September. The stock rose 6.5% to $15.91 on Thursday, after Comcast unveiled the transaction and raised its dividend 40% -- a move analysts said was aimed at appeasing shareholders.
“We're still very unsure about the value created from this deal,” said Collins Stewart analyst Thomas Eagan.
“They definitely heard concerns on Wall Street over the past couple of weeks about the deal inhibiting their ability to buy back shares or increase their dividends,” he said.
The deal calls for Comcast to contribute $6.5 billion in cash, its own cable TV networks and other assets in return for a 51% stake in NBC Universal, owner of TV networks, a movie studio and theme parks. GE will keep a 49% stake.
The companies said that NBC Universal's businesses have been valued at $30 billion. The Comcast businesses that will be part of the deal -- including E!, Versus, the Golf Channel and 10 regional sports networks -- are valued at $7.25 billion.
Once adjustments are made for debt, the new venture would have an equity value of about $28 billion, the companies said. That would give it three times the market value of CBS Corp or Discovery Communications Inc, and nearly as much as Rupert Murdoch's $33 billion News Corp. Walt Disney Co at $57 billion remains the biggest media company.
The deal culminates negotiations that began last spring, nearly collapsed several times along the way, and were kept secret from even top level NBC Universal executives until September, when news reports of the talks surfaced.
GE also had to secure Vivendi SA's agreement to sell its 20% stake in NBC Universal for $5.8 billion. That was in doubt until GE CEO Jeff Immelt jetted off to Paris for a sit-down with Vivendi, after attending a state dinner hosted by US President Barack Obama.
Immelt, who for years showed no public interest in selling NBC Universal, only began seriously considering a deal with Comcast after a March breakfast meeting with JPMorgan banker James Lee, according to a source close to the talks.
As reported by the New York Times, and confirmed by the source, talks included a July meeting in Sun Valley, Idaho involving Immelt, Comcast Chief Operating Officer Steve Burke, and Ralph Roberts, who founded the cable company in 1963 and passed the reins to son Brian in 2002.
A similar cast of executives now must make their case to US regulators, who are certain to hear complaints from consumer groups, before the deal closes. Comcast said it hopes regulatory approval would come in nine to 12 months.
Once completed, the deal will allow GE to concentrate on its industrial business, and could be the first step in a full break with NBC Universal, ending a relationship that stretches back to the dawn of television.
GE can redeem half its stake in the venture after 3 1/2 years, and the rest after seven years, subject to conditions.
The joint venture will be headed by current NBC Universal Chief Executive Jeff Zucker, who helped build the company's valuable cable business, but has also presided over a prolonged slump at its flagship broadcast network.
These days, NBC regularly finishes last in the prime-time ratings race, having never recovered from the loss of hits including “Seinfeld” and “Friends.” Zucker has tried to cut programming costs, abandoning dramas at 10 p.m. in favor of Jay Leno's poorly rated, though inexpensive, comedy-talk show.
But Comcast's interest has less to do with NBC than with cable networks like MSNBC or USA, and its digital business.
The digital jewel is video site Hulu.com. Having a stake in that will help Comcast sidestep a big concern for cable companies -- namely, that users may start cutting subscriptions if they can see their favorite shows online for free.
The deal can also help Comcast offer blockbuster films on movie-on-demand channels ahead of a DVD release. The idea is that since it will own NBC Universal's movies, Comcast could narrow the traditional “window” between a movie's theatrical run and its release for home entertainment.
It is not the first time Comcast has made a play to add movies and TV shows to its business. In 2004, Comcast's Roberts launched a hostile and audacious $54 billion bid to buy Walt Disney -- but in that case, he ultimately failed.
Morgan Stanley, UBS and Bank of America-Merrill Lynch gave financial advice to Comcast, while JPMorgan, Goldman Sachs and Citi advised GE. (Reuters)