Copyright 2003 Newsday, Inc.

Newsday (New York)

September 3, 2003 Wednesday NASSAU EDITION

Vivendi Universal yesterday agreed to end a prolonged auction by handing control of its cable networks, production studio and theme parks to NBC under a deal whose final details still are being negotiated.

The decision eliminates a bid from a group led by Edgar Bronfman Jr. and including Cablevision Systems Corp., the last of a half-dozen suitors to fall away in the 10-month process.

The plan to merge Paris-based Vivendi's U.S. entertainment assets with NBC helps network parent General Electric Co. keep pace with CBS parent Viacom and ABC parent Walt Disney Co., each of which also has a film and television studio and a broad array of cable networks.

But it also raises questions whether that is enough to stay competitive. Rupert Murdoch's News Corp. has similar media properties plus a deal to gain control of the satellite TV provider DirecTV, which also gives him a guaranteed means of distributing channels.

In addition to the broadcast network, the new NBC Universal, which would be 80 percent owned by GE and 20 percent by Vivendi, adds USA, the Sci Fi Channel and Trio to CNBC, MSNBC and Bravo, which NBC bought from Cablevision last year and which has had a surprise hit with "Queer Eye for the Straight Guy." NBC Universal also includes Spanish-speaking network Telemundo, plus Universal Pictures and an interest in five theme parks, where the companies said some NBC events could be filmed.

NBC Universal would have annual revenue of about $13 billion, half that of Viacom or Disney, and earnings before interest, taxes and other charges of $3 billion.

The plan is a victory for NBC chairman Bob Wright, who would head the merged company and who called the assets "extremely complementary," saying NBC Universal would be "superbly positioned to generate substantial growth."

The idea of owning a film studio despite that industry's financial roller-coaster rides has become more attractive with the explosive growth of DVD sales and cable networks.

"The film business is different, but two-thirds of the deal for Vivendi Entertainment is about television," Wright told CNBC.

Universal is especially attractive because it produces "Law & Order" and its offshoots — 20 percent of NBC's prime-time schedule. A studio such as Universal, which has a 5,000-film library including "E.T.: The Extra-Terrestrial," "Seabiscuit" and "The Fast and the Furious," can help fill the schedule of existing and future cable networks — including those being created on digital tiers — with old films and new productions.

That's one of the reasons Cablevision was willing to contribute its American Movie Classics, Independent Film Channel and WE: Women's Entertainment networks to the company Bronfman was trying to form — in exchange for a minority stake.

Calling the Vivendi assets "extremely attractive" and the bidding process fair, Cablevision said it is disappointed its group was not chosen.

Vivendi chairman Jean-Rene Fourtou said the new NBC would rank among the most profitable media companies in the United States and provide a means to develop the entertainment assets to the "fullest" while marking the "beginning of a new era" for a Vivendi with a "healthier financial base."

Vivendi, which had been seeking a $14-billion bid to slash its debt but instead chose NBC even though it offered no direct cash up front, will be able to turn a future commitment of GE stock into $3.8 billion in cash and to reduce its $14.2-billion debt — much of it run up by former chief executive Jean-Marie Messier — by $1.6 billion that NBC Universal will assume when the deal is closed. It will be able to sell pieces of its 20 percent stake to GE between 2006 and 2008.

Vivendi stock rose 8 percent, or $1.35 per share, to $18.25 yesterday. GE gained 3 percent, or 87 cents, to $30.44.

Bronfman, whose family owns a 4 percent stake in Vivendi, which had bought the entertainment assets from Seagram in 2000, yesterday called his group's offer "compelling" and said he is "hopeful that VU's strategic direction will reward its employees and shareholders for their patient and steadfast support."

The Bronfman group, which had offered more than $8 billion in cash and debt assumption as part of its offer, was the last of a half-dozen potential owners or partners to be eliminated over several months, including MGM, John Malone's Liberty Media, oil tycoon Marvin Davis, Viacom and Comcast.

Merger assets will include:

Universal Pictures — The Hollywood studio behind recent movies such as "2 Fast 2 Furious," "Seabiscuit" and "The Hulk."

Universal Television: "Law & Order," "The Agency" and "The District."

NBC television network

14 NBC-owned stations

Cable networks: USA, Sci Fi Channel and Trio Arts Network from Vivendi Universal plus CNBC, MSNBC (jointly owned with Microsoft Corp.) and Bravo.

Telemundo — Spanish language broadcaster, 15 owned stations and 32 affiliated stations.