Time will test VUE value claims
Time will test VUE value claims
Vivendi says its NBC deal is worth about $14 billion, but the true price being paid for its Hollywood assets remains hazy.
September 4, 2003 Thursday
by Peter Lauria
Considering the tortuous nature of his auction, Vivendi Universal SA chief Jean-RenE Fourtou did well by his company in snagging a valuation for its Hollywood assets in line with his $14 billion floor.
Or so he claims.
The truth is, the real value of a combined NBC Universal won't be known until the final merger documents are signed, and perhaps not even then. The numbers both companies floated Tuesday, Sept. 2, are rudimentary at best. And the 14 times Ebitda multiple investment banks ascribed to the operations are, to some, overly optimistic. Preliminary terms of the deal between General Electric Co.'s television unit and the Paris-based conglomerate call for Vivendi to receive $3.8 billion cash via the monetization of GE stock and $1.6 billion in debt relief. Taking the combination's pro-forma Ebitda of $3 billion for this year on its face, a Merrill Lynch & Co. report applies a peer group multiple average of 14 times to derive an enterprise value of $42 billion for the new company, which means Vivendi's 20% piece equates to roughly $8.4 billion. Simply adding the $5.4 billion from the proposed deal's stock and debt component to the $8.4 billion valuation gets Vivendi to just shy of $14 billion.
But as Agawam Partners president Francis L'Esperance pointed out: "The absolute dollar value of the deal depends on how aggressively you value the combined enterprise. Since it's a stock deal, the key valuation issue is the relative value of VUE [Vivendi Universal Entertainment] and NBC. If VUE's perceived value relative to NBC changes as negotiations continue, the final terms could well be different than what was announced. GE's legal and due diligence teams are known to be, shall we say, 'thorough.'"
Merrill Lynch arrives at the 14 times Ebitda multiple by applying the trading averages of companies including AOL Time Warner Inc., Fox Entertainment Group Inc., Metro-Goldwyn-Mayer Inc., News Corp., Viacom Inc. and Walt Disney Co. The bank also counts Univision Communications Inc. and Pixar, which both trade at Ebitda multiples in excess of 25 times. Removing those two from the equation lowers the group's trading average to 12.8 times. That, too, seems aggressive to Marlin & Associates founder Ken Marlin, who said such figures imply a growth rate for the assets that is "not realistic."
The richest cash-based offer Vivendi received was from the Edgar Bronfman Jr. consortium, whose bid package totaled around $13 billion. Applying that figure to VUE's roughly $1 billion in Ebitda results in a 13 times multiple.
The stock component of the proposed transaction also leaves certain questions unresolved. "Is the $3.8 billion in GE stock guaranteed or computed," the first source asked. "Are they backstopping it; is it subject to a collar or taxes?"
In choosing to enter exclusive negotiations with NBC, Vivendi is betting that a deal will not only get done but also result in significant asset appreciation over the next three years -- the company can begin liquidating its 20% holding in 2006. That's a big risk considering the hit-or-miss economics of movie production, the erosion of broadcast television viewership and the possibility of cable networks being offered on an "a la carte" rather than "tier" basis, which could result in significant subscriber losses. It's an even bigger risk when considering Vivendi had a firm, $9 billion cash offer, not to mention significant debt relief and ownership interest, on the table from the Bronfman group.
NBC did not return calls. Vivendi could not be reached.
But Bronfman's credibility was in doubt. After all, he's the one that devastated his family fortune by selling to Vivendi in the first place (and buying Universal in the first place wasn't such a good idea either.) It was not clear that Barry Diller, chairman of InterActiveCorp, which owns a 7% stake in Vivendi's entertainment assets, would have agreed to go along with a Bronfman-led deal. But he'll likely play ball with GE and its vice chairman Robert Wright.
GE's stellar reputation has truly brought good things to life. Now it can compete with AOL Time Warner, The Walt Disney Co. (nyse: DIS - news - people) and Viacom (nyse: VIA.B - news - people) on equal footing, "and the risk is minimal," Marlin says.