Vivendi, GE Polishing Merger

French conglomerate Vivendi Universal and General Electric Co.’s NBC are putting the finishing touches this week on a final agreement to create a new entertainment company valued at more than $40 billion.

An agreement was expected to be announced by Friday or early next week, sources close to the companies said, although the deal would not close until the second quarter of 2004.

NBC Chairman Bob Wright and Vivendi Chief Executive Jean-Rene Fourtou were scheduled to meet today in New York as they wrap up plans to combine NBC’s broadcast and cable channels, including MSNBC, Bravo and CNBC with Universal’s venerable movie studio, theme park and TV group. GE Chief Executive Jeffrey Immelt met with Fourtou earlier this week in Paris.

The new venture, tentatively dubbed NBC Universal, would become overnight the world’s eighth-largest media company based on revenue and boast strategic advantages similar to those enjoyed by Viacom Inc. and Walt Disney Co. -- the owners of CBS and ABC, respectively.

The deal with NBC marks the final lap of a marathon auction that Vivendi hoped would offer a face-saving exit strategy from its disastrous foray into Hollywood almost three years ago, when it merged a French water utility with Universal Studios. NBC is the only major broadcast network without a film studio and faces pressure to bulk up in a rapidly consolidated media world.

Both sides have spent the last month combing their respective books in a process known as due diligence.

Although no major stumbling blocks occurred, the two sides at times clashed over valuations, with GE offering a lower estimate of the projected earnings for the Universal operation, sources close to the negotiations said.

The differences, however, weren’t substantive enough to affect the financial terms of the deal, which were said to be essentially the same as they were when the companies announced a preliminary agreement a month ago, sources at both companies said.

Under the deal, Vivendi would receive a 20% stake in the joint operation, while NBC would own 80% and manage the combined operation. Vivendi envisions selling its share of the business and exiting Hollywood by 2008.

GE has agreed to help Vivendi secure $3.8 billion in upfront cash backed by GE stock. The joint venture also would assume $1.6 billion of Vivendi’s debt.

In addition, Vivendi would receive three of as many as 15 seats on the board of the new entity.

One of the Universal assets that won’t be included in the sale is Newsworld International, a small cable network that airs international newscasts. Vivendi received Newsworld in its $11-billion acquisition of Barry Diller’s USA entertainment assets last year.

Vivendi was in talks to sell the network for $70 million to a group of investors led by former Vice President Al Gore, sources said.