Is the biz feeling an urge to merge?


A new wave of industry mergers and acquisitions appears to be looming, and the question is how broadly and quickly it will crest.

News of Comcast's renewed display of acquisitiveness for Hollywood content -- this time for NBC Universal -- suggests that a recent increase in deal chatter could turn into the next M&A tsunami. The cable giant's interest in NBC Uni follows Disney's recent deal to snap up Marvel Entertainment, which won approval from both companies' boards before even a whisper of the proposal made the rounds.

Comcast's talks with 80% NBC Uni owner General Electric are at an early stage, but they center on combining the cable networks of the two parties.

Here's how it would likely work: Vivendi would formally sell its 20% stake in NBC Uni back to GE. Then GE would combine all of NBC Uni with Comcast's cable networks, with the cable giant targeting a controlling 51% of the merged powerhouse, with an option to increase that over time.

Depending on whom you ask, Comcast would contribute $4 billion-$6 billion -- or, according to one report, as much as $7 billion -- in cash in addition to its networks, valued at $6 billion, to complete the transaction. GE would be able to put as much as $12 billion in debt from its balance sheet onto the merged firm's books.

Such a deal with Comcast would mean the film and TV troops at NBC Uni would have to salute yet another new corporate leader, the latest in a string of studio bosses during the past two decades. Meantime, GE would get to pare its recently worrisome investment in oft-volatile Hollywood businesses. Whether the new combo would then turn around and sell off what it considers noncore assets -- as in the theme parks, perhaps -- remains to be seen.

For Comcast, the acquisition of such meaty entertainment assets would further topper Brian Roberts' long-standing interest in getting into the content game more ambitiously. Bullishness over the prospects of cable TV channels, which have been driving NBC Uni's growth and accounted for 80% of its operating profit last year, seem to be driving the Comcast-NBC Uni talks.

Just this month, Comcast COO Stephen Burke said, "You really can create a lot of value by putting content and distribution together."

As for other media players warming to the M&A option, there are differing views.

"Disney-Marvel kicked off the M&A market," is how Miller Tabak analyst David Joyce put it.

Indeed, an investment banker confided: "We have seen more people come to us. They are looking at things again."

The renewed interest in such big-ticket combos is similar elsewhere on the business waterfront. Kraft Foods has offered to acquire U.K. candymaker Cadbury for $16.7 billion, drug firm Abbott Laboratories has agreed to acquire a unit of Solvay for $6.6 billion, and Xerox plans to buy outsourcer Affiliated Computer Services for $6.4 billion.

But in recent comments, CEOs including Time Warner's Jeff Bewkes, Viacom's Philippe Dauman and CBS' Leslie Moonves have pooh-poohed the notion that transformative mega-mergers are in the offing.

"Although hopes will be raised for copycat distribution-content acquisitions, the reality is that Viacom, CBS and News Corp. are not for sale," Sanford Bernstein analyst Michael Nathanson said Thursday. "Time Warner Cable was just separated from Time Warner, and it is unlikely that either side wants to revisit this synergy idea."

It's also unlikely any telcos would be interested in a big entertainment acquisition, Nathanson added.

Yet nothing is likely to stop speculation.

Time Warner has long been rumored to be interested in pouncing on DreamWorks Animation, though it might well wait until late 2010 to get closer to a relatively inexpensive buyout window in the studio's distribution pact with Paramount. Cash-poor film and TV companies such as MGM and the Weinstein Co. could draw more immediate takeover interest, as could videogame companies THQ and Take-Two.

NBC Uni is a special case, with Vivendi widely expected to put its 20% stake up for sale in the next few months.

"I wouldn't see this, if it happens, as an indicator of anything with regard to other deals," independent industry analyst Hal Vogel cautioned. "It's a one-off situation."

On Thursday, investors traded down shares in GE and Comcast. GE shares closed down 45 cents at $15.97, while Comcast's Class A shares fell $1.21 to $15.67.

Separately Thursday -- and with no small measure of irony -- NBC Uni issued a news releasing reaffirming its "commitment to film and television production and tourism in Los Angeles." The announcement included updated details on transit improvements tied to its proposed residential development near the studio's backlot in Universal City.
-Nielsen Business Media