Comcast (CMCSA), the nation's largest cable company, and GE (GE), the giant industrial conglomerate, are nearing agreement on a deal that would value NBC Universal, the huge entertainment company, at around $30 billion, sources familiar with the matter tell DailyFinance. If successful, the pact would pave the way for a distribution and content behemoth sure to attract attention from regulators. The new entity would dramatically alter the competitive landscape of a media world already wracked by Internet-driven disruption and the ever-increasing penetration of high-speed broadband service.
Comcast, already a corporate giant, clearly sees the long-lusted-after golden chalice of a unified content and distribution system within its grasp.
Negotiations are still underway and the deal could fall through -- French media giant Vivendi (VIVDY), which controls 20 percent of NBC Universal, hasn't signed off yet -- but assuming negotiations are successful, an announcement could come as early as this week, according to knowledgeable sources.
An NBC insider told DailyFinance that the deal would be welcomed by many at the Peacock network. "We respect GE as a company, but I don't think anyone will really miss them -- we're just not a logical fit with the rest of their businesses, and they impose a significant amount of bureaucracy on us," the insider said.
Per the terms being discussed, Philadelphia-based Comcast would acquire 51 percent of NBC Universal, and contribute billions in cash as well as cable channels. General Electric, which currently owns 80 percent of NBC Universal, would hold on to the other 49 percent and contribute several billion dollars in debt to the new company. Earlier this month, Comcast reported a 22.5 percent rise in third-quarter earnings, beating expectations. The $30 billion valuation was first reported in The Wall Street Journal.
Antitrust Issues Could Complicate Deal
Comcast executives are keen on the prospect of gaining control of the media giant -- which owns the NBC TV network, the Universal movie studio and other valuable properties -- for less than 100 percent of the cost of the company, according to a sources familiar with the matter. It's highly unlikely that the valuation would rise beyond $30 billion, they say, and it could wind up below that.
Indeed, from Comcast's point of view, the deal makes a world of sense. As my colleague Jonathan Berr wrote, "For Comcast, an alliance with NBC Universal will provide with the content it needs to feed its expanding media empire."
Comcast already operates a vast broadband distribution network through which it delivers on-demand content. Gaining control of NBC Universal's rich stable of content would create an unrivaled media and distribution juggernaut. And that's precisely why regulators will be so keen to scrutinize this deal, should it happen.
"It's virtually guaranteed that FCC [Federal Communications Commission] regulators would review this deal," Glenn Manishin, a former antitrust counsel and trial attorney at the Justice Department's Antitrust Division, told DailyFinance last month. "This could be a signature case for Chairman [Julius] Genachowski to demonstrate the principles he enunciated when he was confirmed." Manishin predicted any deal would also face review by the Federal Trade Commission or the Justice Department.
Manishin said any deal is sure to raise red flags at the FCC on the issue of "vertical foreclosure," which concerns how Comcast could discriminate in favor of its newly acquired NBC Universal content against that of rival content producers. Manishin explained that in mega-media deals of this sort, the FCC typically takes a "prophylactic" -- or preventive -- role, while the Justice Department would wait until an anti-competitive action had occurred.
As the negotiations wend through the lawyers on all sides -- don't forget about Vivendi -- surely visions of synergistic media nirvana are tempered by the certain knowledge that this deal will not happen unless the federal government signs off on it. And that's the way it is.
Follow Sam Gustin, a reporter for DailyFinance, on Twitter here. Follow DailyFinance's tech coverage here.
Basics Of The Stock Market
Stock Market 101 - everything you need to know but were afraid to ask!View Course »