The Consequences if Vivendi Foils NBCU-Comcast Deal

For the second time in as many weeks, Vivendi (VIVEF.PK) is signaling that it may not sell its 20 percent stake in NBC Universal, which would thwart a $30 billion deal to make Comcast (CMSCA) the majority owner. If the much anticipated deal does not materialize in three weeks, there will be widespread fallout.

Vivendi Chief Financial Officer Philippe Capron said today no board decision has been made yet about the "complex" situation. "We have never been closer to the end of the story. It's in the future, but I can't comment on the timing or the likelihood of what will happen," Capron said at the Morgan Stanley (MS) Technology, Media and Telecoms Conference in Barcelona.

That could be negotiation rhetoric, given reports that Vivendi is trying to squeeze more money out of NBCU's 80 percent co-owner, General Electric (GE). As it is, cash-strapped GE would place $12 billion against the new NBCU to buy out Vivendi. GE would be a minority owner in NBCU with Comcast.

Vivendi also could seek to sell its stake to a third party or to the public (in a stock offering). Vivendi has until 2012 to sell its stake during an annual window from Nov. 15 to Dec. 10.

Vivendi could opt not to sell this year even though it needs the proceeds for non-media acquisitions. A delayed or foiled deal would have consequences for Comcast, NBCU, GE and the entire media industry:

• NBC Universal could begin making some of the changes Comcast would likely make as the new owner. These include spinning off or selling the NBC-owned TV stations to a major affiliate group owner such as Hearst (HTV), Gannett (GCI) or Belo (BLC). The fourth-ranked NBC TV broadcast network could be dismantled and its news, entertainment and sports operations could be redistributed to new or existing cable networks including NBCU's USA, CNBC and MSNBC.
• Comcast could continue pushing for a NBCU deal under other scenarios. For instance, Comcast could seek majority control of NBCU if GE decides to publicly spin it off. Vivendi could remain a 20 percent stakeholder.
• Comcast could continue to battle its falling stock price and anxious stockholders. Pursuing NBCU has reinforced the notion that CEO Brian Roberts is determined to own a content company. Comcast made a failed bid for Walt Disney (DIS) in 2004.
• Comcast could pursue smaller content companies since its primary interest in NBCU is taking ownership of its lucrative cable networks and film studio. Companies that could be deal friendly include Lions Gate Entertainment (LGF), DreamWorks (DWA), Scripps Networks Interactive (SNI), Discovery Communications (DISCK) and Take Two Interactive (TTWO) and Electronic Arts (EA).
• NBCU could attract other suitors. GE has declared its intention to sell NBCU as it continues to reshape its industrial and financial portfolio. Other potential acquirers could include John Malone's Liberty Media (LMDIA) and Rupert Murdoch's News Corp. (NWS) Alternatively, GE could seek to publicly spin-off its 80 percent share of NBCU.
• Convergence could become a media deal catalyst again. If Comcast, the nation's largest cable operator, believes combined content ownership and distribution is a good thing, others may follow. That would buck the recent trend in which conglomerates such as Time Warner have been selling off non-core assets to focus on either content production or distribution.
• Media values could be reset. The dearth of media deals and the decline in stock prices have created uncertainty about the recovery of media company prices. The premium Comcast appears willing to pay for a 51 percent ownership stake in NBCU will be used as a benchmark to boost other media company multiples.
• Other cable operators also could seek backup strategies. Cable operators publicly resist the suggestion that their customers may cancel their expensive cable subscriptions now that they can increasingly download streaming video on the Internet. Owning the content and expanding into mobile wireless could be defense measures.
• Comcast stock could continue to plummet as a result of angry shareholders dumping the stock. Comcast investors prefer cable's steady free cash flow to the volatility of broad media merger and acquisition activity.