Comcast wants content and NBC Universal has it

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The nation’s largest cable television company, Comcast Corp., is kicking the tires of entertainment giant NBC Universal, according to people familiar with the situation.

Comcast, which has almost 25 million subscribers, has been looking to expand its entertainment offerings for several years. In NBC Universal it would get not only a big broadcast network and movie studio, but several powerful cable channels, including USA, Syfy, CNBC, MSNBC and Bravo.

NBC parent company General Electric Co. has long denied that it is interested in selling its vast entertainment holdings. However, the industrial giant is facing the possibility that its minority investor, French telecommunications company Vivendi, in six weeks will exercise an option to unload its 20% stake in NBC Universal. That would require GE to come up with $4 billion to pay Vivendi – or find new investors to take the place of Vivendi. This isn’t the first time that Comcast has made a play for Hollywood.

Five years ago, Comcast made an unsuccessful run to buy Walt Disney Co. for $54 billion – a move that backfired because investors promptly punished Comcast’s stock. Even this week, one Wall Street analyst suggested that Comcast’s stock continues to be undervalued because of concern that Comcast executives are thinking big again.

In this case, Comcast may be looking at acquiring a big chunk of NBC Universal, but not the entire company.

Taking an ownership interest in NBC Universal would be substantially less than what Comcast would have paid for Disney. A recent analyst report from JP Morgan analyst Stephen Tusa said NBC Universal was worth between $30 billion and $35 billion. A separate analysis by Sanford C. Bernstein & Co. valued NBC Universal closer to $23 billion.

That would still be a pretty big nut for Comcast to swallow, however. The cable giant has a market capitalization of $48 billion, and has about $4 billion in cash.

For NBC Universal, selling a stake would potentially limit the tax implications for parent GE, which bought NBC in 1986 for $6.5 billion.

Comcast and NBC Universal would not comment on the talks. Comcast did deny a report today (Wednesday) from industry website The Wrap that said it had a deal to buy NBC Universal for $35 billion.

Speculation that GE may be looking to unload NBC Universal, or simply raise money, has heated up during the last month as the deadline for Vivendi’s decision approaches. A Vivendi spokesman said Wednesday that it would make a decision on whether to exercise its option in November or early December.
There have been questions raised as to whether GE -- which has first dibs on the Vivendi interest -- could muster the $4 billion - $5 billion needed to buy back the stake or whether another company such as cash-rich Time Warner or Comcast would step in and buy it.

For Comcast, getting all or some of NBC Universal would give it programming assets to match its distribution clout. It owns a handful cable networks including E! Entertainment Television, Versus, the Golf Channel, G4 and 10 regional sports networks. None of its cable networks have the commercial success of NBC’s assets.
Speaking at a recent investor conference, Comcast Chief Operating Officer Steve Burke said the company would like to own more cable networks.

“We wouldn’t be doing our job if we didn’t try to figure out a way to get bigger in those businesses,” Burke said. He also cautioned that that doesn’t mean “doing a big $50-billion acquisition.”

Former Viacom Inc. CEO and Universal Studios Chairman Frank J. Biondi said a deal makes sense for Comcast. “It would be a great fit,” said Biondi, who is currently managing director of the private equity fund Waterview Advisors LLC. “It would give Comcast a real presence in the basic cable network business, which in theory should be their bread and butter.”

Philadelphia-based Comcast was founded by Ralph Roberts, who built the company up from one cable system he bought in Tupelo, Miss., in 1963. His son Brian has been running the day-to-day operations of Comcast for over two decades and is now its chairman and CEO.

While NBC has valuable entertainment real estate, particularly its cable networks, many of its other holdings are struggling. Its Universal Studios is in a slump at the box office and its management is under pressure to turn things around or be replaced. The NBC network has been mired in fourth place for several years and has had a lackluster start to the new fall television season.

In the first half of 2009, NBC Universal made $1.6 billion on revenues of $7.5 billion. Its revenue accounts for less than 10% of General Electric Co.’s total revenue.

For all the talk about how NBC Universal is not a fit with General Electric, owning the network, which has the Olympics and a strong presence in Washington through its news programs, has given the company some cache and stature.

-- Joe Flint and Meg James.

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NBC Universal President Jeff Zucker. Credit: Gary Friedman