GE plugs in Viv U offer

NBC crafts joint venture plan

NEW YORK — With just over a week to go before “final” deal terms are due to be delivered to Viv U auctioneer Jean Rene Fourtou, the components of Peacock chief Bob Wright’s proposal are looking alluring.

Sources close to GE said the industrial conglom is prepared to allow the Gallic seller to save face by offering it up to $2 billion in cash in the form of a debt purchase and will likely issue blue chip GE stock to Viv U, rather than shares in a new company.

Viv likely will retain a 25% stake in a new NBC-VUE joint venture along with, or possibly in place of, an unspecified number of GE shares that could be redeemed for cash. The joint venture would exist within GE for some three years, after which time it would be spun off either to shareholders or via an initial public offering.

Sources also suggested that NBC has proposed a joint venture arrangement for Universal Music Group as well.

Close to the vest

GE and NBC sources declined to comment on any deal terms. Indeed, inscrutable dealmaker GE rarely shows its hand in an auction, and analysts even say the company has been known to intentionally mislead about its true intentions.

Nevertheless, with Wright last week hitting the Street to make the NBC pitch to investors, certain key deal terms are emerging, while others can be guessed at by analyzing recent GE transactions.

The cash component of the VUE bid is believed to take the form of a pre-payment of some $2 billion in Viv U debt, which GE would promptly refinance on its own AAA-rated balance sheet at a far lower interest rate. Such an arrangement would be similar structurally to GE’s purchase this week of a division of Transamerica, whereby GE agreed to purchase $3.8 billion of Transamerica’s debt.

In this way, GE would not have to deplete its own cash reserves, while Viv U would get some immediate relief for its own balance sheet.

GE’s cash stash

Analysts still reckon GE has sufficient cash on its balance sheet to grant Viv U at least another $1 billion cash if it wanted to sweeten its offer. GE currently has $1.2 billion cash on hand, and recently sold assets that will bring in another $1.4 billion or so.

Viv U is thought to have asked GE for at least $6 billion in cash, which could yet undermine a deal if Fourtou refuses to budge on that point.

Wright, who believes that NBC is not fully or fairly valued within GE stock, told investors last week there is now considerable support from senior GE brass for the deal.

Adding value to GE

In recent weeks, big GE stockholders have been warming to the idea of a NBC-VUE merger as a way to add long term value to the parent company. One large fund-holder said GE investors would be comfortable with some share dilution that would come from giving Viv GE stock (up to around 5 cents a share) and would vastly prefer such a stock-based deal since it would not jeopardize GE’s top-shelf credit rating.

Perhaps partly out of desperation, Viv U has been hinting recently that is more comfortable with a strategic, long-term deal than pursuing the highest cash offer. That would give the edge to NBC or to Comcast, should it choose to lodge a bid later this week. To be sure, other bidders or potential bidders, including Edgar Bronfman Jr., and Liberty Media, have no intention of backing off in response to the GE foray.

The Gallic firm is sufficiently liquid to survive another two years before some of its larger debt payments kick in, thereby making a deal for currently depressed GE stock more attractive.