Comcast And NBC merger/Acquisition

7/27/2019 Comcast And NBC merger/Acquisition

1/15

Estimating The Real Cost Of Comcasts Investment InNBC Universal

Group 14

Abhishek Agrawal 12P122

Amit Dubey 12P125

Ladlee Rathore 12P144

Manoj Kapoor 12P147

Kawaljeet Singh 12P208

Vignesh Patil 12P177


2/15

Comcast Corporation

Originally formed as American Cable Systems in 1963

In 1996, Comcast launched Comcast Online, a broadbandInternet service. ( purchased Sarasota Online)

In December 2005, Comcast announced the creationof Comcast Interactive Media (CIM), a new division focused ononline media.

In 2009 , at time of merger deal , Comcast was primarily a

cable company and provider of programming content.

Company had 23.8 million cable customers, 15.7 million highspeed internet customers and 7.4 million voice customers.


3/15

General Electric : NBC

Universal In 1995, NBC began operating NBC Desktop Video,

a financial news service that delivered live video topersonal computers

In 2003, GE acquired 80 % stake in Vivendi.(universal studios production , distribution , themeparks and cable television channels )

Parent company, GE had a wide portfolio consistingof Energy, Technology Infrastructure, CapitalFinance and Consumer & Industrial


4/15

Why the merger ?

Comcast Corporation

Threat from online video

Competition from satelliteand phone companies thatoffer subscription TV services

Offset any threat of its cablecustomers shifting to TVprograms online.

More control over the videos

Could offer movies-on-demand channels ahead of oron the same day as a DVDrelease

NBC

GEs desire to exit the

business. Focus on core

business

Deteriorating state ofbroadcast televisionindustry

Deal will help GE to reduce

its debt which got affectedin 2008 crisis


5/15

Merging the Assets

Comcast assets

Regional sports network

Two entertainment sites

Cable channels

NBC assets

Cable channels

Broadcasting networks

10 local TV stations

TV production & distributionstudios

Theme parks


6/15

Available Options

Put option

Allowing it to sell one half of itsinterest after 3.5 years and theremaining half at the end of the 7thyear

Conditions

1. JV is obligated to buyout GE only ifits debt did not exceed 2.75 times itsEBITDA as a result of buyout

2. JV is able to maintain investmentgrade credit ratings

Call option

Comcast has a call option to buy GEsinterest at specific intervals

Condition

1. Comcast has to pay a 20% premiumto the public market value of its stock

Comcasts call option strategy will be funded purely from

the cash flows of this JV and if the CF fall short, Comcastwill spend $ 5.75 bn in cash or stock to buyout GE


7/15

Financial Transactions

COMCAST JV

NBC

$ 37.25 Billion

Debt: $ 9.1 Billion

Vivendi: $ 5.8 BillionTransaction Cost & Pre-Closing Debt: $ 1.8Billion

$ 7.25 Billion

6.5 + 9.1 5.8 1.8 = $ 8 Billion

* There would also be a TAX consideration on NBCs profit further reducing the profit


8/15

Question 01- Speculate as to why GE may have found it difficult tomanage NBC Universal.

Answer-

GE wanted a balanced capital allocation plan which meant allocatinginvestment from the non-core business to the core businesses i.e.finance and infrastructure

To reduce overall debt of a recession-hit GE

Deteriorating economics of the Tele-vision industry

Decline in overall Ratings & Advertising

To reduce overall debt of a recession-hit GE

GEs desire to exit a business that never quite fit well with its industrial

side

GE wanted a balanced capital allocation plan which meant allocatinginvestment from the non-core business to the core businesses i.e.finance and infrastructure


9/15

Question 02- Debt liability of $ 9.1bn

Answer-

Comcast

Debt obligation: 9.1*0.51 = $4.64 Billion

Cash transfer to NBC: $6.5 Billion

Assets of Comcast: $7.25 Billion

Total: $18.39 Billion NBC

Debt obligation: 9.1*0.49 = $4.46 Billion

Cash transfer from Comcast: $(6.5 Billion)

Cash transfer from JV: $(9.1 Billion)

Assets of NBC: $30 Billion

Total: $18.86 Billion

Total Value of the JV: $37.25 Billion

Actual Stake of NBC: 37.25*0.49 = $18.25 Billion

Actual Stake of NBC: 37.25*0.51 = $19.00 Billion


10/15

Issues for FCC

The FCC has jurisdiction over the merger by virtue of the transfer ofbroad-cast licenses between NBC and Comcast

Proposal of TV everywhere concept which links online mediaviewing with TV subscription fees (between Comcast and TimeWarner)

The opponents of merger claimed that post merger entity will holdmassive wealth of premium content which may be anti competitiveand anti consumer

Allegations of dividing markets, raising prices for subscription andexcluding new competitors

The proposed transaction creates the possibility that Comcast-NBCU,either temporarily or permanently, will block Comcasts videodistribution rivals from access to the video programming

Post vertical integration price increases will result for Comcast-NBCUnational cable programming


11/15

Conditions imposed by FCC

Ensuring Reasonable Access to Comcast-NBCU Programming forMultichannel Distribution

Offers standalone broadband Internet access services atreasonable prices and of sufficient bandwidth so that customerscan access online video services without the need to purchase a

cable television subscription from Comcast. Does not enter into agreements to unreasonably restrict online

distribution of its own video programming or programming ofother providers.

Provides to all MVPDs (multichannel video programming

distributors), at fair market value and non-discriminatory prices,terms, and conditions

Protecting Diversity, Localism, Broadcast and Other PublicInterest Concerns


12/15

Question 03- Speculate as to the potential circumstances in whicheither Comcast or GE would be likely to exercise its call/put options.

Answer-

In our opinion, Comcast is likely to exercise its call option because offollowing reasons:

Comcast had set aside $5.78 bn for a two staged process exit for GE, if thecash flows are not enough from this JV to exit GE

Comcast are ready to pay 20% premium in the call option, over the marketvalue ofGEs stake

Comcast wanted to mitigate risk of acquiring the whole entity and use thecash proceeds from the JV to exit GE, but were bullish on the synergiesbetween content creation and distribution

Circumstances which may lead to exercise of options by either party: If the synergies between NBC and Comcast materialise with expected free

cash flows which the Comcast had projected GE may exercise if they get a good premium for their stake as they had

already mentioned of exiting the media business and invest in

infrastructure


13/15

Question 04- Challenges in integrating the various businessesof Comcast & GE that make up the joint venture

Answer-

So the major challenges were to :

Coordinating and developing the minority suppliers of NBC with Comcast

Maintaining operational efficiency when the board constituted 3 membersout of 5 of Comcast but the CEO of JV was from NBC

Integrating minority businesses of NBC including theme parks, which maynot fully align with Comcasts business plans

To create councils to promote employee diversity to represent stakes ofminority shareholders in NBC

Maintaining and operating Hulu.com, which may create a conflict between

paid content and free content service of Comcast and NBC resp.

Create synergies between integration of TV subscription and onlineaccessibility, which was one of the major drivers of JV


14/15

Post Merger Position & Strategy

Case of vertical integration

Comcast plans to invest $300 million more on broadcast and cableprogramming in 2011-12

Lower earnings in the beginning due to the launch of NBC's new fall season

During the first six weeks of the new TV season, NBC's ratings were down11% in the key audience demographic of viewers

Comcast realizes that they need to spend more to address following issuesthat had developed because of ill-fated management decisions by NBC'sprevious owner

hiring of producer Ben Silverman to program the NBC broadcast network

GE's relentless demands that NBC Universal executives find ways to reducespending to help shore up the industrial giant's bottom line

Comcast cancelled few shows and added some new

Company plans that cable will drive 80% of its revenue, and its Internetpresence will be expanded


15/15

Thank You

Comcast And NBC merger/Acquisition

Documents

Transcript of Comcast And NBC merger/Acquisition