This article was updated at 9:54 p.m.
It’s called NBC Universal, for the time being, at least. It’s a new media company about the size of News Corp., valued at some $42 billion. And it’s going to be run by NBC topper Bob Wright.
That’s the upshot of the deal between Vivendi Universal and General Electric, confirmed Tuesday. And while there are many details still to be worked out, the “For Sale” sign has finally come off Universal Studios.
Some executive fallout inevitably will follow shortly, but official reactions were ebullient Tuesday. Wright will make a trip to Los Angeles today to reassure the troops and perhaps disclose some changes.
Meanwhile, Jean-Rene Fourtou, chairman of Vivendi, was elated. “I feel that a weight has been taken off me. I am relieved of a mass of worries about debt and the risks of value reduction in assets that I didn’t feel we were capable of managing ourselves. It is a world far away from us. This deal is a huge step forward,” he told Daily Variety following a press briefing in Paris.
Wright offered a vote of confidence in Universal’s film managers, led by Ron Meyer and Stacey Snider, praising both execs. “This is a first-class group of movie folks,” he said in an interview on CNBC. “We’re starting from a very attractive position.” But he also made a point of reassuring wary GE shareholders that film is only 10% of Universal’s business and that the new company would be big enough to absorb any “volatility” on the film side with “no spillover” into General Electric’s buttoned-up balance sheet.
Meyer said of the news, “GE and NBC are two world-class organizations and I can’t think of a better parent company for Universal than them.”
But he and other U execs are waiting to learn what the merger will mean for current management structures.
Wright will meet with senior U management this morning, followed by a larger town-hall meeting with employees to discuss the future of the studio.
Edgar Bronfman Jr.’s bid had been viewed more warmly on the Universal lot, primarily because it was seen as the most likely to keep U management stable. However, any anxiety over a redrawing of the corporate org-chart the NBC pact has provoked was offset by a sense of relief at having the cloud of uncertainty lifted from the movie studio.
While the pact could still unravel over final legal and tax issues, execs at both congloms spoke of it as a done deal. After a Viv U board meeting Tuesday, the partners released what amounted to a detailed gentleman’s agreement that Fourtou said “is very close to a contract.” The two sides will negotiate exclusively to resolve outstanding issues and see a final agreement by month’s end. The deal is expected to close in early 2004.
Pact calls for Viv U to take 20% of the new entity, plus $3.8 billion worth of cash and easily monetized securities. GE will assume $1.6 billion of Viv U’s massive debt.
The new company, which will be a subsidiary of GE, will have annual revenues of $13 billion and a nominal value of $42 billion. NBC may spin off the company in an IPO after the two companies are successfully integrated. Viv U can start selling down its 20% minority stake in 2006.
Wright said the deal allows “NBC to grow and be stronger and broader in a world moving from analog to digital.” NBC “will be easier to understand” as part of an integrated media group than it was as a lone TV network wrapped in a giant industrial conglomerate. Recent acquisitions, like that of Spanish-language broadcaster Telemundo, will make more sense within a larger media group. And Wright said NBC’s expanded business would make it less dependent on advertising, which is cyclical.
A competing bid for U led by Bronfman, who lobbied furiously over the Labor Day weekend, offered more cash. But, as anticipated, Vivendi saw blue-chip Peacock parent GE as the safer strategic bet.
“Mr. Bronfman and the team around him (which included Cablevision and several financial backers) offered a compelling transaction. But our board has made a decision and will not have any more discussions with anyone but our friends at NBC-GE,” said Jean-Bernard Levy, Vivendi’s chief operating officer.
Bronfman and his father, Edgar Bronfman Sr., are expected to resume their seats on the Vivendi board. They suspended their board participation while the auction was under way. Bronfman, whose family is Viv U’s single largest shareholder, recently called a potential GE-Universal deal “exactly the wrong outcome for shareholders” of Vivendi.
On Tuesday, he said: “We believe ours was a compelling proposal. … Now that Vivendi’s board has decided to enter into exclusive negotiations with GE-NBC, I am hopeful that Vivendi’s strategic direction will reward its employees and shareholders for their patient and steadfast support.”
Some speculate Bronfman may still covet Universal Music, which Viv U has opted to keep for now.
Cablevision CEO James Dolan said the cabler is disappointed at being shut out. “We maintain our belief that the Vivendi Universal Entertainment assets are extremely attractive and we expect that they will continue to thrive. … We believe that the process was fair and conducted in an honorable and professional manner. We wish GE, NBC and the management of Vivendi all the best as they proceed.”
The deal marks the latest, and probably the last, pairing of a TV broadcast network and a Hollywood studio. The other nets are all spoken for with ABC, CBS, and Fox, plus weblets WB and UPN, already part of giant entertainment congloms. While industryites acknowledge there are challenges in vertical integration, trends have been against stand-alone studios and networks.
Wright insisted NBC was “fine” on its own but that the Universal auction was too appealing to pass up. “It was opportunistic. The businesses were put up for sale. It was not something we solicited. But it’s not an opportunity that comes along very often,” he said.
Barry Diller, who has played a central role in the Vivendi Universal drama, praised the deal, saying it will allow NBC “to compete with the giants at chest level.”
Carefully complimentary himself, Wright noted he had spoken to Diller early Tuesday and considers him a “friend and supporter of this transaction.” Diller and his company, InterActive Corp., together own about 7% of Vivendi Universal Entertainment. He can choose to cash in or roll his stake over into the new entity.
Wright said he thinks people have wrongly characterized Diller’s interest in the VUE sale. “He is simply trying to protect the bargain he struck several years ago” with former Vivendi chairman Jean-Marie Messier, Wright said. He said GE and Diller plan to sit down and talk about the issues.
Diller bought most of Universal’s television assets when they were owned by Seagram and run by Bronfman. Then he sold them back to Messier for a bundle of cash, stock and byzantine guarantees after Vivendi bought Seagram. Diller ran VUE for a year with a focus on slashing costs. Lately, he has invested heavily in his Internet company, lopped the “USA” off its name and convinced InterActive Corp. shareholders that he has no secret yen to run a movie studio.
The merger needs a green light from regulators, primarily in the European Union. “We have a very good and solid relationship with our friends in Brussels,” said Levy. And even as the U.S. Congress and public are up in arms about media concentration, neither Levy nor Wright expect any regulatory holdups on antitrust or other grounds.
The U.S. Dept. of Justice must approve the deal. Wright said the FCC would likely want to look at it as well. And there could be additional questions from D.C. as Vivendi, a French company, will hold a significant interest in a U.S. broadcast network. A GE spokesman said the agreement falls within current media foreign ownership restrictions.
(Alison James in Paris and Gabriel Snyder in Hollywood contributed to this report.)