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Vivendi Could Ignite Discounted Spin-Off or Sale of NBC Universal

This could be the year Vivendi unloads its 20 percent stake in NBC Universal. But even if it finally exercises that option in November, NBCU's parent GE isn't unlikely to unload part or all of the unit for at least a year, according to my sources.

Should such a sale come to pass, it would represent the first market test of traditional network valuations in the rapidly transforming digital environment. A transaction could lower the pricing bar for other traditional media players. A closer look at the moving parts reveals how complicated the situation can become.

GE is likely to consider a move by Vivendi as an opportunity to sell or spin all or part of the media unit to ease a recession-induced cash squeeze. More specifically, GE could:

  • Sell NBCU outright to well-heeled private equity or corporate buyer such as Time Warner, Microsoft, Liberty Media, InterActiveCorp or Google.
  • Acquire Vivendi's 20 percent stake in NBCU for about $6 billion or flip it to a new strategic minority partner that could include recent Saudi or Indian GE investors.
  • Publicly spin off all or part of NBCU as the stock market strengthens and values reset. GE is unlikely to break up NBC assets, analysts say.
NBCU has lost about half of its combined $44 billion value since GE-NBC acquired Universal from Vivendi in 2004. Historical values for television, film and publishing properties are in flux as digital access, distribution, production and storage dramatically erode advertising and other core income. While those are unlikely to return to former levels, GE may be reluctant to sell NBCU at its current discounted price.

Although Vivendi publicly complains about NBCU's declining financial performance, some analysts speculate that Vivendi may seek to acquire GE's 80 percent stake, now worth about $16 billion. The French conglomerate has previously dodged U.S. limits on foreign ownership of media companies, as it currently holds 50 percent of video gamer Activision Blizzard and all of Universal Music.
Vivendi's decision will be strategic. "Vivendi has said all along that at some point, it will want to move on; that NBCU is not a core asset," said a high-level source.

GE has its own issues: GE Capital's mounting debt, severe cost cuts and asset sales at its disparate divisions, missed profit targets and a market cap bottoming at around $71 billion earlier this year.

GE CEO Jeff Immelt will need to justify hanging on to transitioning traditional media. NBCU's fourth-place network NBC is losing prime time ratings and advertising revenues in a weak upfront market. NBCU's operating profit plummeted more than 40 percent in the first half of 2009. Nicholas Heymann, analyst with private brokerage Sterne Agee, expects NBCU's full-year operating profit to decline 15 percent to $2.6 billion on $15 billion in revenues, down 11 percent from the prior year.
NBCU's successful branded-TV franchises -- a rarity in the industry these days -- and its profitable cable networks would draw prospective buyers. But I believe overall uncertainty about the financial viability of traditional media will make it difficult for NBCU and its peers to command top dollar for a complete or partial sale of their assets.

CBS is struggling to remain the only pure play media company that owns a broadcast network. It has been beset by deteriorating advertising revenues and business model. Analysts forecast CBS 2009 earnings will fall 30 percent to $1.8 billion on a nearly eight percent decline in revenues to $13 billion. Those figures aren't likely to fully rebound even in an improved economy, analysts agree.

That makes NBCU more than just another media transaction waiting to happen.

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