Universal’s Real Sales Price a Moving Target

Ever since they announced a proposed marriage with General Electric Co.’s NBC this week, Vivendi Universal executives have touted two things about the merger:

They would be pairing with one of the most trusted names in corporate America, and they’d finally reap the $14 billion they’d long sought for their Universal movie studio, theme parks and cable TV assets.

The latter would be an especially sweet accomplishment for the French executives, who were hounded by critics during a four-month auction for setting an unrealistically high asking price. Several leading bidders, including Liberty Media Corp., dropped out of the race after balking at the price tag.

Yet, despite the favorable reaction from Wall Street to the deal, the actual value of the transaction remains murky in the eyes of some analysts.

“It’s always going to be subjective because there’s no benchmark; there’s no publicly listed stock,” said Mark Harrington, an analyst with Bear, Stearns & Co. “It’s a paper number.”

In fact, if a deal is struck, Vivendi shareholders wouldn’t know for some time whether they’d pocket the $14 billion they’ve been promised -- or whether they’d get less or, quite possibly, even more.

That’s because the $14-billion value NBC and Vivendi assigned to the Universal assets is somewhat discretionary.

NBC had flexibility that other bidders did not because it offered to merge rather than make a straight-up acquisition. Under this structure, assets contributed by both partners have been assigned a value.

Whether that value ultimately will allow Vivendi to reach the $14-billion target won’t be determined until the joint venture sells its shares to the public in the next couple of years. The key, analysts said, would be whether the promised synergies between NBC and Universal pan out.

GE made one last-minute concession by offering to help Vivendi secure $3.8 billion in upfront cash backed by the Fairfield, Conn., industrial giant’s stock. That amount was considerably higher than many analysts expected.

But sources said Friday that GE was steadfastly refusing to grant something else Vivendi has sought: a floor price for the shares of the combined NBC-Universal operation. That would lock in the $14-billion value.

Instead, GE has agreed only to buy the shares at market prices from 2006 through 2008. If the shares fall, Vivendi could wind up with far less than its desired asking price.

Vivendi has agreed to the risk because of the potential upside of the merger. “We’re very bullish on this.... We could get $18 billion to $20 billion” if the partnership takes off, one Vivendi executive said.

For now, GE and Vivendi have assigned conflicting valuations to the NBC-Universal operation. GE has put its worth at $42 billion. Vivendi says it’s closer to $45 billion. The discrepancy stems from, among other things, different calculations of how much efficiency can be improved -- and expenses cut -- as a result of the merger.

Either way, Vivendi would retain a 20% equity stake in the joint venture, valued at $8 billion to $9 billion. Combined with the $3.8 billion in upfront cash and the assumption of $1.6 billion in Vivendi debt by GE, that totals roughly $14 billion.

Some analysts contend the figure is too high. Harrington, who favors the deal, values the transaction at closer to $13 billion. A Sanford C. Bernstein & Co. report comes up with an even lower figure: $12.2 billion.

“The merger allows Vivendi to claim that their target price was achieved, as private valuations do not create as ‘concrete’ a price tag as public deals,” the report noted.

Other analysts and investors, however, say the $14-billion mark is reasonable.

“It’s not a stretch,” said Andrew Rittenberry, an analyst with Gabelli & Co., a Vivendi investor. Vivendi “got a good deal for shareholders.”