Comcast pulls plug on VUE bid

Potential buyers dwindle as deadline looms

NEW YORK — Comcast’s Brian Roberts gave a polite “non, merci” to Vivendi Universal chief Jean Rene Fourtou Thursday, as the cable titan declined to make an offer in the Gallic firm’s fast-dissolving “bidding war” for its U.S. entertainment assets.

But Comcast did say Thursday it would agree to explore new channel launches in conjunction with Viv U’s worldwide content.

Viv U, meanwhile, confirmed that these talks would not interfere with its current plans to conclude the process for the possible sale of VUE.

Comcast in recent weeks had assembled a crack team of consultants and valuation experts to comb through the VUE books to determine whether the 21 million-subscriber Comcast could justify mounting a deal for Viv U’s film and TV studio and cable ops.

In the end, Comcast apparently did not like what it found — or, at least, could not find a way to make the numbers work at a level even close to the $13 billion-$15 billion Viv U insists the assets are worth.

Valuation at issue

The issue largely came down to a question of valuation that, at best, was believed to be in the $10 billion range.

The Comcast team apparently valued U studios at little more $3 billion and cable nets at close to $5 billion.

With barely 10 days to go before Viv U’s expected board meeting, at which Fourtou promised to provide some resolution on its VUE disposal plan, only General Electric, Edgar Bronfman Jr. and possibly John Malone’s Liberty Media are still contenders.

“Contrary to some public speculation, we still continue to be interested in the business,” Malone said during a Liberty Media conference call. “But I can’t say when or how that will resolve itself.”

Comcast’s exit from the auction leaves an even clearer path for GE-backed NBC, which is proposing a mostly stock and debt purchase joint venture with VUE to create a combined entity that could be spun off in the future.

Malone, meanwhile, continues to play coy about his intentions, and according to one ally “will likely hold off until Viv U comes begging to him.”

That leaves Bronfman, whose cash resources and plan may not meet Viv U’s demanding strategic and financial targets.

Bid parameters set

Viv U apparently has asked would-be buyers to notify them by today as to whether they are proceeding with the bidding process according to several parameters.

These include a minimum valuation of around $14 billion (roughly $12 billion for Viv’s 86% stake), an undisclosed minimum amount of cash (possibly $1 billion-$2 billion) and, if stock is offered as part of the deal, details of the proposed exit strategy and price floor.

That minimum guarantee could be a sticking point for GE, which has proposed stock combined with a minority holding in a joint venture entity.

However, Viv U could likely find a bank that would advance the funds in exchange for the shares.

Still, Roberts’ fast-track perusal of the books was hardly a fruitless effort.

Comcast got a three-week crash course in content company valuation, which will undoubtedly come in handy for future acquisition scouting, not to mention for carriage deal renewals with VUE’s USA Network and Sci Fi channel.

View of VUE

But Comcast’s decision to pass on even a lowball offer raises suspicions about VUE assets’ true valuation.

While equity analysts have put VUE valuations in the vicinity of $13 billion for Viv U’s 86% stake, the private market values lodged by bidding parties have been considerably lower.

Bidders have cited concerns about the library and possible subscriber fee slowdowns at USA Network in the future.

Unless Malone pulls a rabbit out of his hat, GE looks to be the only bidder that can likely meet Viv U’s hefty valuation demands, though admittedly it will take a few years to get there.

According to a research note issued Thursday by GE analysts at Sanford Bernstein, VUE-NBC could create synergies over two to three years worth around $300 million in pre-tax operating profit annually.

Such gains could be worth more than $5 billion in equity value to GE, more than justifying the risk of a low-cash bid.

NBC chief Bob Wright has told investors he believes the VUE assets still have plenty of life in them, provided they can be well managed (read: as long as cost cuts are initiated).

But besides selling off the theme parks and possibly the Universal City real estate, NBC would have to work some operational magic to coax revenues back into the group’s TV production and library sales.