After an intense yearlong review by the U.S. Federal Communications Commission and the U.S. Department of Justice, Comcast Corp. won approval to acquire 51 percent of NBC Universal from General Electric Co. The deal, which closed on January 28, puts Comcast in charge of the NBC broadcasting network and a host of cable channels, including Bravo, CNBC and USA. The takeover fulfills CEO Brian Roberts’s dream of transforming Philadelphia-based Comcast into a media powerhouse with control of distribution and content. After shareholders blocked the company’s 2004 bid for Walt Disney Co., Roberts kept pursuing this goal. His push to vertically integrate the nation’s biggest cable operator is largely a defensive move. “Comcast doesn’t want to become a dumb pipe,” says Susan Crawford, a professor at Yeshiva University’s Benjamin N. Cardozo School of Law.
Negotiated in early 2010, the deal limits risk and provides upside for Comcast and GE. NBCU assumed $9.1 billion in debt and gave the proceeds to GE, which bought Paris-based Vivendi’s 20 percent stake in NBCU for $5.8 billion. Comcast and GE then formed a joint venture, with GE contributing the NBCU businesses, valued at some $30 billion. Comcast contributed its cable networks and digital media properties, valued at $7.5 billion, and paid GE $6.2 billion.
GE gets a sharper focus on its core business, cash to reinvest and a hand in the joint venture’s potential growth. “We are reducing our ownership stake from 80 percent to 49 percent of a more valuable entity,” CEO Jeffrey Immelt said in announcing the transaction.
Because it gives Comcast so much sway over content, pricing and the future of the media landscape, the acquisition sparked criticism from public interest groups. Under the direction of executive vice president David Cohen, an influential figure in Pennsylvania politics, Comcast hired more than 75 former government employees as lobbyists and donated vast sums to legislators’ pet charities. As a result, regulators likely found it politically untenable to block the merger.
As Cardozo’s Crawford explains, the deal is all about cable channels, which account for 80 percent of NBCU’s operating cash flow; the NBC network, Universal Studios and theme parks make up the rest. Control over top-quality content strengthens Comcast’s cable packages and lets it keep potential rivals’ costs high. “The acquisition of NBCU gives Comcast a seat at the negotiating table whenever content is discussed,” says Joseph Turow, a professor at the University of Pennsylvania’s Annenberg School for Communication.
Investors were skeptical of the takeover — which doesn’t offer the ample top-line or cost synergies that usually justify deals of this size — worrying that it would prevent Comcast from returning capital to shareholders. In response, the cable giant increased its annual dividend twice and accelerated its stock repurchase plan. Comcast shares, which traded at $15.91 on December 3, 2009, when the merger was announced, closed above $26 late last month.
In 2010 the NBCU businesses made $3.35 billion in earnings before interest, taxes, depreciation and amortization, so Comcast paid a multiple of 9 times enterprise value over ebitda, notes Jason Bazinet, a New York–based media analyst at Citigroup. “At the very least, the deal is a very smart financial transaction,” says Bazinet, who expects ebitda of $17.9 billion on revenues of $55.8 billion next year. “The company bought a scarce asset at a very reasonable multiple on depressed levels of ebitda.”
Stephen Burke stepped down as Comcast COO to become CEO of NBCU. A former president of ABC Broadcasting and an ex-COO of Euro Disney, he’s also staying on as executive vice president at Comcast. “Burke has a lot of strong experience in both content and distribution, which will be very useful in integrating the two companies,” says David Joyce, a media analyst at trading firm Miller Tabak + Co. in New York.
The deal sets up Comcast’s eventual buyout of GE. “It is a very attractive structure,” says Comcast spokeswoman D’Arcy Rudnay. If its forecasts are right, Comcast will be able to purchase GE’s remaining interest in NBCU with free cash flow from the joint venture.
