Comcast, GE Ready to Announce Deal

By SAM SCHECHNER, JEFFREY MCCRACKEN And MAX COLCHESTER After marathon negotiations, Comcast Corp. and General Electric Co. are poised to announce a deal Thursday that would give Comcast control of GE's NBC Universal, turning the cable-television giant into one of the world's largest suppliers of TV shows and movies. Journal Communitydiscuss“ Comcast is a major player in broadband access, and networks like NBC have been trying to figure out for years how to monetize their productions over the Internet. I expect this transaction will go a long way toward answering that question. ” The deal—which has been in the works for nine months—comes after Paris-based telecom and media company Vivendi SA agreed this weekend to sell its 20% stake in NBC Universal to GE for $5.8 billion, according to people familiar with the matter. If approved by regulators, the deal would give Comcast control of the U.S.'s oldest television network, more than a dozen cable networks and Universal Studios, which includes both the movie studio and theme parks. Together with its existing businesses, Comcast would oversee assets with revenue of $51 billion in 2008, greater than that of Time Warner Inc., Walt Disney Co. or News Corp. It is possible the deal's announcement could still be delayed beyond Thursday. The deal runs against Wall Street's recent preference for breaking up media companies. Time Warner, which owned cable networks of its own, was cheered when it spun off its cable operation this year. Stockholders have pushed Comcast's shares down more than 11% since word of a potential NBC Universal deal surfaced in September. But for Comcast, the deal is in part a way to cope with the tumultuous media business. An explosion of ways to watch TV and movies on the Web threatens to undermine some of the most lucrative parts of the entertainment industry. DVD sales are down. Advertising sales are increasingly fragmented. Even after Comcast absorbs the new business, more than three-quarters of its operating profit will flow from its core cable- and Internet-service business. That business is under siege from satellite, telephone and Internet companies pushing TV shows directly to consumers. In late October, Steve Burke, Comcast's chief operating officer, warned at a conference that the growing popularity of online video could prompt a new generation to cut off their subscriptions to cable TV. Comcast-GE and the Fairytale of Media M&A Comcast executives argue that owning more cable networks, which have thus far proven resilient, is a good investment and that NBC Universal will give Comcast scale to expand its dominance, according to people familiar with their thinking. Comcast executives often point to others, such as Liberty Media Corp. Chairman John Malone, who built up fortunes controlling content and distribution together. Already, Comcast, which provides cable-TV service to 23.8 million homes and Internet service to 15.7 million homes, is rolling out a system that will put TV shows on the Web for its customers. Comcast has also been aggressive in pushing video-on-demand services. With NBC Universal, Comcast will gain a ready source of content for those subscription-only ventures. For GE, giving up control of NBC Universal represents a major shift more than nearly a quarter century after it bought NBC. The media business has been a checkered arena for the financial and industrial giant. While NBC's prime-time lineup has stumbled in recent years, GE also oversaw the founding of CNBC and MSNBC and the company's 2004 acquisition of Universal and cable networks including USA Network from Vivendi. In part, GE's growing willingness to give up NBC Universal was a question of capital allocation. GE was unwilling to invest more money to buy other media assets, such as cable channels, that NBC Universal executives thought they would need to grow, according to people familiar with the matter. The Comcast-NBC Universal tie-up is likely to draw scrutiny from regulators and lawmakers for six months to more than a year, according to legal experts and others familiar with the matter. While the government isn't expected to block the deal, the new venture may be forced to accept tough conditions on how it conducts business, these people said. Already, at least some owners of competing television networks are communicating their concerns about the deal to Washington legislators and regulators, people familiar with the matter said. The terms of the deal largely follow a template that Comcast and GE executives first hammered out over the summer, people familiar with the talks said. It merges NBC Universal, valued at approximately $30 billion, with Comcast's portfolio of cable networks and some of its Web assets, valued at about $7 billion. Comcast will inject cash in the range of $6 billion and receive an initial 51% of the venture, the people said. GE will at first retain the remainder but is slated to be bought out in the seven years following closing. The deal structure presents risks, said Bob Wright, former chief executive of NBC Universal. "It's going to be a management challenge when one party is looking to grow and the other party is looking to get out," Mr. Wright said. But GE could benefit if the venture performs well, he said, adding, "Yes, it's a risk, but there's also upside." GE has publicly stated its intentions to focus its spending and research in coming years more on its industrial businesses such as energy turbines, aircraft engines and health care, rather than on service-oriented businesses like finance and media. For Comcast's part, there are mechanisms in the deal that could reduce the company's cash contributions, potentially lowering the effective valuation of NBC Universal, according to people familiar with the matter. One mechanism could credit Comcast with some of NBC Universal's cash flow before the deal closes, those people said. Another could alter Comcast's cash contribution based on the financial performance of both the Comcast and GE assets being combined in the joint venture, they added. "It's an extremely positive transition for both parties," said Scott Singer, a Bank Street Group investment banker who focuses on the media sector. "This is a stellar set of assets with a stellar brand name." —Paul Glader and Shira Ovide contributed to this article. Write to Sam Schechner at sam.schechner@wsj.com, Jeffrey McCracken at jeff.mccracken@wsj.com and Max Colchester at max.colchester@wsj.com