NEW YORK — Don’t count NBC out.
In the countdown toward final bids for Vivendi Universal’s entertainment properties next week, the Peacock has the most to gain and possibly the least to lose in making a compelling offer. And while there are few certainties, sources within and outside the company said NBC may actually have the best chance of walking away with the prize.
Conventional wisdom has been that NBC, like rival bidder Viacom, was interested primarily in Vivendi Universal’s cable nets, USA and Sci Fi Channel, and that it would lob only a low-ball offer into the mix.
But sources said the Peacock may be preparing an offer for both the studio and the cable properties. And while it is unlikely to be the highest cash bid, and would not encompass Universal Music, an offer from NBC could be hard for Vivendi U to refuse.
Why? Because as juicy as the private equity-backed offers from Edgar Bronfman and Marvin Davis appear on the surface, the private-equity money committed to the Bronfman- and Davis-backed bids for VUE could back out at the last minute. Furthermore, the strategic potency of NBC grabbing VUE could provide longer-term gain for Vivendi U if it retained a stake.
But there are a lot of reasons it would make sense for NBC to make a further leap into Hollywood. Web’s status as the lone net not aligned with a major studio hasn’t been a huge handicap, but having a synergistic link to a studio wouldn’t hurt, either.
In addition, while it’s far from a determining factor, net’s dependence on Universal Network TV’s “Law & Order” franchise (which this summer comprises a quarter of the web’s primetime sked) makes it vulnerable to outrageous license fee demands from the studio. Indeed, U already has publicly declared its intent to dramatically raise the price for each of the three “L&O” skeins as they come up for renewal– though it’s always possible the Peacock could simply walk away, as it has from the NBA and the NFL.
(What’s more, the net doesn’t need to buy U to get ‘Law & Order’; it can simply make a deal for the show.)
Peacock also has the ability to leverage a large movie library across a range of cable and broadcast networks.
NBC, nestled securely in the blue-chip fold of parent General Electric, is said to be Vivendi U topper Jean Rene Fourtou’s preferred buyer. It arguably offers the best strategic fit for Vivendi U’s film and TV assets, with strong growth prospects, an important consideration given that any bid will likely oblige Vivendi U to maintain a minority stake in VUE in order to avoid a $1 billion tax payment to Seagram.
While GE’s current paucity of resources for near-term multibillion-dollar acquisitions could limit NBC’s clout at the bargaining table, the GE-owned TV unit has numerous advantages in the final round of bidding:
- It could offer highly desirable General Electric shares as part of the deal: NBC is one of the few bidders that can offer stock as partial payment, which is virtually as good as cash and will cut tax exposure.
- It has a strong management team with Bob Wright at the helm.
- It offers a good strategic fit. NBC’s unaligned status, and Viacom’s success with running Paramount alongside CBS and a strong cable net biz, makes the combo compelling in the hands of good management.
- While a deal wouldn’t give NBC the sort of cradle-to-grave ad power that Viacom has, the combo of NBC with buzzworthy cablers such as Sci Fi and USA could give the net some added leverage come upfront time. Peacock could continue to focus on 18-49, with USA skewing a bit older and Sci Fi younger.
Logically, strategic buyers like NBC or Liberty Media have the greatest financial resources to throw at a bid, but the question is whether either is willing to use them. A major hurdle to GE making a $10 billion-plus offer is how comfortable shareholders would be with a virtual doubling of NBC’s size, especially given the verdict — mixed so far — on last year’s Telemundo buy. GE brass usually measures acquisitions, especially big ones, by their ability to be quickly additive to its share price.
GE is believed to have ready access to at least $5 billion in cash, and could contribute its stock to a deal or possibly offer to purchase a smaller initial stake in VUE. It also could consider partnership with another bidder. One GE analyst noted that NBC’s recent $2.2 billion deal for Olympic rights, where a chunk of the money came in the form of GE sponsorship commitments, suggest NBC is capable of being creative in structuring a deal.
To be sure, NBC has other less expensive acquisitions in its sights, especially following the FCC ruling to ease ownership restrictions. A buyout of station group Paxson is thought likely.
And even though Wright may be ready to make an offer, some industry observers wonder whether GE execs will ultimately opt against such a huge investment.
“The reality is, when it gets down to the final innings and they have to start evaluating the economic value of giving up (stock value) and dropping it into another company, is that going to be good for shareholder value five years from now? I think when cooler heads prevail, (GE execs) will say this is too much money,” said one insider.
Barry Diller’s legal claims on the disposition of VUE also are a wildcard. His USA Interactive asserts it might have serious objections if an entertainment company that has competing assets with those of VUE (as NBC would) acquires control of VUE.
Ultimately, the decision is Fourtou’s. Most believe the Vivendi U CEO wants the most cash possible and a clean exit. He also will be looking for the deal that has the best chance of closing. By the first quarter of next year, the Gallic firm could be faced with another liquidity crisis. And no amount of strategic appeal will stave off creditors indefinitely.
(Josef Adalian in Hollywood contributed to this report.)