Cable Operators

Comcast/GE Make It Official

12/03/2009 7:23 AM Eastern

Comcast To Make JV Concessions

 

Comcast and General Electric Co. formally announced what may arguably have been the media industry's worst kept secret over the past few months, that they have agreed to form a joint venture with GE's NBC Universal media properties valued at about $30 billion.

The announcement, which had been expected ever since early October when it first surfaced that the two business giants were in talks, contained few surprises. According to the deal GE will contribute NBCU's businesses valued at $30 billion, including its cable networks, filmed entertainment, televised entertainment, theme parks, and unconsolidated investments, subject to $9.1 billion in debt to third party lenders. Comcast will contribute its cable networks including E!, Versus and the Golf Channel, its ten regional sports networks, and certain digital media properties, collectively valued at $7.25 billion, and make a payment to GE of approximately $6.5 billion of cash subject to certain adjustments based on various events between signing and closing.

A conference call with the financial community is scheduled fortoday at  8:30 p.m. (ET),  while a media call is slated for two hours later. Check multichahnnel.com for updates and more details on this transformative agreement.

The deal will create the Comcast Entertainment Group (CEG), which will house Comcast's interest in the joint venture and will stand alongside Comcast Cable, which operates the company's traditional cable business. Headquarters for the business will remain in New York. The joint venture board will have three directors nominated by Comcast and two nominated by GE.

"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," Comcast chairman and CEO Brian Roberts said in a statement. "In particular, NBCU's fast-growing, highly profitable cable networks are a great complement to our industry-leading distribution business. Today's announced transaction will increase our capabilities in content and cable networks. At the same time, it will enhance consumer choice and accelerate the development of new digital products and services."

The deal marks the beginning of an exit from the media space for GE, which bought the NBC broadcast network in 1986 and steadily increased its cable holdings over the years. In 2004 the company significantly boosted its cable presence with the purchase of 80% of Vivendi Universal and under chairman Jeff Zucker has added to its cable portfolio with the purchase of networks like Oxygen and The Weather Channel. Zucker will become CEO of the joint venture, reporting to Comcast chief operating officer Steve Burke.

"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," GE chairman and CEO Jeff Immelt said in a statement. "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. By doing so, GE gets a good value for NBCU. This transaction will generate approximately $8 billion of cash at closing with an expected small after-tax gain."

While some critics have pointed to the failure of past attempts to meld distribution with content - Time Warner, which split off its cable distribution unit in March is held up as a prome example, Burke said in a statement that the situation will be different with Comcast NBCU.

"Both Comcast and NBCU have excellent track records of integrating and growing multi-billion dollar businesses, including significant content acquisitions," Burke said in a statement. "In addition, we have both developed some of the country's most popular programming and built many of the most watched and valued networks in the industry. We are confident that we'll be even stronger together, and look forward to working with Jeff Zucker and the NBCU team to deliver the best consumer experience."

Zucker also seemed promed for the challenge.

"Combining the assets of NBCU, ranging from our suite of cable properties and two broadcast networks to a legendary film studio and global theme park business, with the content assets and resources of Comcast, will enable us to continue to thrive in an ever-changing media landscape," Zucker said in a statement. "Consumers of all of our products - on screens large and small - will have the benefit of enhanced content and experiences, delivered to them in new and better ways as a result of this transaction. This marks the start of a new era for NBCU, and I'm genuinely excited that I will be leading this wonderful organization, along with the Comcast team, at this important time in our history."

Below are some of the key deal points:

• NBCU will borrow approximately $9.1 billion from third-party lenders and distribute the cash to GE.

• NBCU, valued at $30 billion, will be contributed to the newly formed joint venture. Comcast will contribute its programming businesses and certain other properties valued at $7.25 billion.

• GE will acquire Vivendi's 20% interest in NBCU for $5.8 billion. GE will purchase approximately 38% of Vivendi's interest (or approximately 7.66% of all outstanding NBCU shares) from Vivendi for $2 billion in September 2010, if the Comcast transaction is not closed by then. GE will acquire the remaining 62% of Vivendi's interest (or approximately 12.34% of all outstanding NBCU shares) for $3.8 billion when the transaction closes.

• Comcast will make a payment to GE of approximately $6.5 billion in cash subject to certain adjustments based on various events between signing and closing.

• The new venture will be 51% owned by Comcast and 49% owned by GE.

• GE expects to realize $9.8 billion pre-tax in cash before debt reduction and transaction fees and after buyout of the Vivendi stake. GE expects to realize approximately $8 billion in cash after paying down the existing NBCU debt and transaction fees.

• GE will be entitled to elect to cause the joint venture to redeem one-half of its interest at year 3 ½ and its remaining interest at year 7. The joint venture's obligations to complete those purchases will be subject to the venture's leverage ratio not exceeding 2.75X EBITDA and the venture continuing to hold investment-grade ratings. Comcast also has certain rights to purchase GE's interest in the venture at specified times. All such transactions would be done at a 20% premium to public market value with 50% sharing of upside above the closing valuation.

• To the extent the joint venture is not required to meet GE's redemption requests, Comcast will provide a backstop up to a maximum of $2.875 billion for the first redemption and a total backstop of $5.750 billion.

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