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General Electric and Vivendi are moving closer to a deal on NBC Universal, with Vivendi agreeing to accept payment for just one-third of its stake until a related deal with Comcast closes, according to a source familiar with the situation. Talks between Vivendi SA and General Electric Co have been holding up Comcast Corp's plan to buy a controlling stake in NBCU.
Vivendi has to agree to sell its 20 percent stake to GE before the Comcast deal, which would be the biggest in media this year, can progress. While Vivendi and GE have not agreed on a price yet, the French media company's acceptance of a staggered payment schedule shows it is willing to compromise to pave the way for Comcast, the largest US cable service provider.
Vivendi had previously asked to be paid fully upfront to avoid regulatory risk - US antitrust enforcers are expected to take at least a year to scrutinise the Comcast-NBCU deal. Vivendi values its stake in NBCU, acquired in 2004, at $6.1 billion, according to sources familiar with the situation.
One said GE's latest offer is about $500 million lower, while two people described the gap as less than $1 billion. Comcast, which has long coveted owning media content, has been in talks for months with GE, which owns 80 percent of NBCU and has been under pressure from some shareholders to divest its media business.
The plan is for GE to sell Comcast a 51 percent stake in a proposed joint venture. Comcast would contribute its cable networks and $4 billion to $6 billion in cash to the venture. The two companies have agreed to value NBC Universal at about $30 billion, sources previously told Reuters. But for that deal to happen, GE has to buy out Vivendi's stake first.
PUT OPTION Every year between November and December, Vivendi has to decide whether to exercise its "put" option to sell its stake. It could also demand an initial public offering for NBC Universal instead, putting it in a strong bargaining position. Vivendi acquired Brazilian telecoms group GVT in a $4.8 billion deal last week.
"Following the GVT deal, we believe Vivendi will ultimately sell its stake in NBCU, but not at any price ... Similarly, GE needs Vivendi's stake for Comcast for the tie-up to go through and we see a compromise as likely," UBS wrote in a note. Differences in valuation and when Vivendi should get paid have slowed the talks, the sources said, dampening hopes of GE and Comcast announcing a deal before the US Thanksgiving holiday next Thursday. "There seems a good deal of posturing on all sides," Citi analysts wrote in a note on Friday, adding they valued Vivendi's stake at $5.9 billion.
"Vivendi's liquidity rights (right to force an IPO at some point) may well be unappealing to Comcast as a potential majority owner of NBCU over time. As such, we think that Vivendi's leverage in negotiations will be reasonably strong," the analysts wrote.
NBC declined to comment while Vivendi did not return calls seeking comment. GE and Comcast have ironed out all their issues and are now waiting for GE and Vivendi to reach a resolution, sources said.
Neither side is expected to walk away, the sources said, but the hold-up makes the timing of a deal unclear. The proposed joint venture is expected to be able generate cash to pay down $9 billion in debt that would be added to its books as part of the deal. It would use that debt to buy the rest of the company from GE.
GE has negotiated a redemption option that would give it the right to redeem all or part of its stake in the new company in exchange for cash at the three-and-a-half year mark and at a seven-year mark, sources have said. The terms of the deal allow Comcast's cash payment to be determined partly by NBC Universal's financial performance. If the unit's performance worsens between the signing of the deal and the closing, Comcast could end up paying less, sources previously told Reuters.

Copyright Reuters, 2009

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