ANALYSIS: Comcast/NBCU May Create More M&A Activity

Wall Street eyes new conglom as potential buyer and seller
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Some Wall Street players are licking their lips at the prospect of a whole range of new assets coming on the market as a result of Comcast’s imminent deal to acquire control of NBC Universal. While it’s unclear what properties, if any, might change hands once the deal is complete, a whole host of M&A specialists are ready to pounce.

“The fodder for new deal activity is huge,” said one media practice leader at an investment bank, commenting on the proposed combination. This person suggested that the new venture, which will be owned by both Comcast and General Electric, (presuming Vivendi sells its 20% interest in NBCU) may even be a buyer of assets itself. Vivendi declined to comment on any ownership change during the firm’s earnings call on November 12.

Ken Sonenclar, managing director at media investment bank DeSilva + Phillips, New York, points out that both Comcast and NBC Universal have strong female-focused assets. “There’s no reason to doubt that after a brief period of rationalizing the new entity, the new NBCU will be acquisitive as well,” he says. “I expect them to continue picking up digital media businesses that complement core strengths, such as the many properties that appeal to women.”

Comcast owns online shopping destination Daily Candy while NBCU owns the just re-launched women’s community, iVillage.

One executive familiar with talks said the Comcast/NBC Universal negotiating team is currently focused on future valuations on the individual properties in part because GE has a redemption option which would allow it to redeem all or part of its stake after either three and half years and seven years.

According to various reports, the deal would allow Comcast’s cash payment to GE to be decided in part by NBC Universal’s financial performance. The spin-off is valued at around $30 billion. Comcast is contributing its cable channels along with $4 billion to $6 billion to the venture, while GE will add $9 billion in debt and its NBC Universal stake. Comcast will then hold 51% in the new company with GE holding the remaining 49%.

Executives familiar with talks insist there is no intention to sell the NBC network whatsoever, though that isn’t stopping a range of prospective players from speculating on a variety of outcomes. Two reasons Comcast will want to keep hold of the network are its ability to act as a huge promo vehicle for the company’s many assets, and the possibility of retransmission fees from other distributors of the network. For instance, News Corp. has been pitching Fox network as worth as much as one dollar per household.

But there is still the opinion by some that Comcast will divest the network.

“They will want most dual revenue stream assets but network TV is a dicier game,” said a separate deal maker in the broadcasting space who thinks there is little hope for the continuation of four profitable broadcast networks in the television business. “I say NBC is sold off simultaneous with the acquisition.” Another investment banking source said the network would be worth very little as a standalone unless it comes with stations attached.

NBC Universal’s stable of cable channels has become the crown jewel of the company and the target of Comcast’s interest, but much less discussed are NBCU’s collection of shareholdings in operations whose futures might be less certain as part of the joint venture.

For instance NBCU owns a 15% stake in A&E Television Networks alongside stakeholders Disney-ABC and Hearst Corp. When that partnership was restructured earlier in the year, after Lifetime was merged into the entity, the partners made it clear that NBCU would eventually exit the business with Disney and Hearst taking up NBCU’s position.

It is not clear what Comcast’s view of that situation would be now. Comcast has so far been very private about its discussions for fear of upsetting either Vivendi, GE, or regulators in advance of closing a deal. It has said close to nothing on the record about its intentions.

Elsewhere, NBC Universal holds an interest in the Weather Channel alongside Bain Capital and Blackstone Group. NBC Universal fronted a $3.5 billion acquisition back in July 2008 with half of that deal accounted for in equity. Executives at Time Warner are watching closely to see if that property or any part of it might again come up for grabs. Time Warner had been a bidder on the Landmark-owned property and likely sees it as a good pairing for CNN.

And then there’s online video play, Hulu, which is one-third owned by NBC Universal, in partnership with News Corp., Disney and Providence Equity. Some analysts have suggested that one reason for Comcast’s interest in the NBC Universal acquisition is the potential for controlling the flow of top tier TV content online and thus the protection of its cable subscription model. It would seem unlikely for Comcast and GE to give up a position in that entity.

Another question mark lies in the future of Peacock Equity, a joint investment fund of GE Capital’s Media, Communications & Entertainment business and NBC Universal. The $250 million fund was established to invest in companies developing business models that are a strategic fit with NBC Universal. Current and previous Peacock Equity investments include: Adify, EveryZing, Bigpoint, Healthline, 4INFO and Trion World Network, according to the firms Website.

A variety of players are warning about the complexities of the NBC Universal deal. “It is so complex this thing could get buried under its own internal entanglements,” said one person referring to the layers of management that will need to agree on future strategy.

Comcast Corp. however has hired Hillary Clinton’s former strategist Mark Penn to help position the deal in the best possible light once complete, according to sources. The cable giant declined comment, but works with M&A PR specialist Abernathy MacGregor Group of New York.

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