NBCU's Likely Buyers

Some on Wall Street think its time Vivendi got out of NBC Universal (see related story, “GE Outlines Options If Vivendi Opts Out Of NBCU”). Here’s a quote from Bernstein Research, “We think Vivendi’s management should exercise its exit rights in light of the need to invest in assets that will sustain its earnings and cash flow per share (and ultimately its dividend) after 2011.”

Bernstein’s research analysts put their heads together yesterday and came up with some interesting scenarios for what might happen to the French company’s 20% stake in NBC Universal should Vivendi decide the time is right. Last night I talked to Berstein’s General Electric analyst, Steven Winoker, who thinks the most likely outcome is for private equity partners to come in and take up the stake.

Vivendi CEO Jean-Bernard Levy is due to speak Wednesday, September 16 at Goldman Sach’s Communicopia media conference and the topic will be hard to ignore. Though the company doesn’t have to formally exercise it’s right until November, it’s hard to believe Vivendi hasn’t already telegraphed its likely intentions to General Electric given all the smoke in the market.

Winoker points out that NBC Universal already has business partnerships with three major private equity companies. Providence Equity Partners, a part-owner of Hulu, is expected to announce the hiring of former Time Warner Chairman Richard Parsons as an adviser, an indication that the company may need some additional heft when it comes to big media negotiations.

Meanwhile, Bain Capital and Blackstone are also part-owners with NBC Universal in The Weather Channel. If anyone is in possession of any NBC Universal proposal documents then these three private equity players surely are. Winoker lays out some other options too. I’ll just quote directly from the research report.

“1. GE exercises its right of first refusal and purchases Vivendi’s 20% stake. If exercised, GE and Vivendi each select one appraiser from a pre-approved list of 12 banks. If the valuations are within 20% of each, the average valuation is taken. If the valuations are more than 20% apart, a third appraiser is chosen and then the average of the closest two appraisers is used.

2. GE does not exercise and Vivendi conducts an IPO for their 20% stake in NBCU. Three lead underwriters with GE selecting two and Vivendi selecting one. GE controls the process with Vivendi input.

3. Vivendi (with NBCU Board approval) agrees to a private placement–selling up to the $4B to a third party–or they mutually agree to sell the entire 20% to that third-party if more than $4B. Additionally, GE could simultaneously sell a portion of its remaining equity to the third-party.

4. GE and Vivendi restructure the contract to IPO all of NBCU.”

Another variable in question is what exactly is NBC Universal worth? Much of that depends on one’s view of the advertising market. Despite an uptick in ads related to Cash for Clunkers, political races and health-care reform, one broadcast network chief we spoke to this week wasn’t sure of any big bounce back in the TV ad market, and worried that any bump in the scatter market might simply be a temporary blip. Still NBC Universal’s cable assets are in growth mode and CEO Jeff Zucker is carefully weighing options that would give the broadcast network a similar dual-revenue stream.

J.P. Morgan suggested last week, the total value of the entity is between $30 billion and $35 billion. Bernstein says between $21 billion and $23 billion and bases its estimates on current valuations for similar companies such as News Corp. and The Walt Disney Co. The rest we’ll just have to keep guessing on.