GE, Vivendi Finalize NBC Universal Deal

The long and often tortured script for Universal Studios was put to bed Wednesday as French-owned Vivendi Universal and General Electric Co. finalized an agreement to marry their entertainment assets in a deal that could spur far-reaching changes in Hollywood.

As was widely anticipated, the two companies agreed to create an entity that combines the Universal movie studio, theme parks and TV businesses, including the Sci Fi and USA cable channels, with GE’s television operations. Those include the NBC broadcast network and the cable properties CNBC, MSNBC and Bravo.

The agreement is expected to close in the second quarter of next year, subject to regulatory approvals.

The new venture, which the companies valued at $43 billion and dubbed NBC Universal, would be managed by NBC. With a projected $13 billion in annual revenue, it would be the nation’s seventh-largest publicly traded media company, after AOL Time Warner Inc., Walt Disney Co., Viacom Inc., Comcast Corp., Sony Corp. and News Corp.

Financial terms remained essentially the same as those announced last month.

Vivendi values the overall transaction at $14 billion. The company would receive a 20% stake in the joint operation, and NBC would own 80%. Vivendi could begin selling its shares in 2006 and would control three of 15 seats on the board of the new entity.

GE’s famously thrifty ways and eye for maximizing profit could bring sweeping changes not only to Universal but also to Hollywood, media analysts say.

“GE will have tremendous influence in changing the factory floor on movie production,” said Tom Wolzien, of Bernstein Research. “In five years or 10 years, we will look back and see that GE provided the remake of the entire movie studio business.”

For Vivendi, the deal marks a face-saving final chapter in what has been a calamitous venture into Hollywood. Nearly three years ago, the Paris company acquired Universal’s assets in a bid to transform itself from a water utility into a rival to AOL Time Warner. The failed strategy left Vivendi with huge debt, leading to the NBC-Universal deal.

For NBC, the merger reflects a desire to bulk up in an increasingly consolidated media world. NBC has been the only major broadcast network that doesn’t own a film library. Universal Pictures boasts a library of more than 5,000 films, including “E.T. the Extra-Terrestrial” and the “Jurassic Park” and “Mummy” franchises.

“The agreement is a significant milestone in the history of both NBC and General Electric,” NBC Chairman Bob Wright said.

Although NBC can’t begin making significant changes until the deal formally closes, executives from both companies already are planning potential areas of consolidation, Wright said in an interview Wednesday. That could mean combining some of Universal’s offices in Universal City with NBC’s offices in Burbank, he said.

The companies say they have identified $400 million to $500 million in cost savings and revenue growth that should come from combining operations. In a conference call with investors, Wright said the merger would create new opportunities to launch cable channels based on Universal’s film and TV properties, as well as to take advantage of digital technologies.

Wright said his management team would include Randy Falco, group president of NBC Television, who is slated to become the chief commercial officer of NBC Universal, overseeing advertising sales and other revenue-generating operations. NBC Entertainment President Jeff Zucker is set to remain in charge of NBC’s broadcast and cable programming.

Wright praised the management of Universal’s movie studio, which has churned out its share of box-office hits despite having gone through four owners in 12 years. He said he expected Vivendi Universal Entertainment President Ron Meyer to continue overseeing the studio and theme parks. Universal Pictures head Stacey Snider also is expected to stay on.

For its part, Vivendi hopes a merger with NBC can help lift its flagging stock price. The deal also would help lower Vivendi’s debt to less than $6 billion by the end of 2004, down from more than $30 billion in early 2002.

“This is a very good agreement for Vivendi Universal shareholders,” Vivendi Chief Executive Jean-Rene Fourtou said.

As part of the transaction, GE would assume $1.7 billion of Vivendi debt and provide GE stock, which Vivendi would convert to $3.8 billion in upfront cash. That includes $500 million to buy out minority shareholders, including Barry Diller and his InterActiveCorp.

Diller and his company also hold preferred interests in the Universal assets worth more than $2 billion. Those aren’t factored into the GE deal. Before the merger closes, GE expects Universal to pay off Diller, whose company holds rights that restrict use of the assets.

Vivendi executives plan to start discussing “unwinding,” or buying out, Diller’s stake sometime in the next two months.

Vivendi shares dropped 4 cents to $19.17 and GE shares fell 53 cents to $30.20, both on the New York Stock Exchange.

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Birth of a giant

Here’s a look at the final agreement to merge Vivendi Universal with General Electric’s NBC. The joint venture will have a combined asset value of about $43 billion, the companies say.

The deal

* GE will hold 80% of the new company; Vivendi shareholders will hold 20%.

* NBC will manage the assets day to day.

* Vivendi will receive $3.8 billion in upfront cash backed by GE stock guarantees.

* GE will assume $1.7 billion of Vivendi’s debt.

What the new company will hold

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Broadcast networks:

NBC

Telemundo, Spanish-language network

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Television stations:

14 NBC stations

15 Telemundo stations

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Studios:

Universal Pictures

Universal Television Group

NBC Studios

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Cable channels:

CNBC

MSNBC

Bravo

Mun2

Sci Fi

USA Network

Trio

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Universal Studios theme parks:

Universal City

Orlando, Fla.

Osaka, Japan

Near Barcelona, Spain

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Sources: NBC, Times research