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Vivendi, GE reach preliminary merger deal

A proposed deal to meld General Electric and Vivendi Universal's entertainment arms would create one of the world's biggest media companies.

Vivendi Universal and General Electric said Tuesday that they have agreed to hold exclusive negotiations for a merger of their Vivendi Universal Entertainment and NBC subsidiaries.

Under a preliminary proposal, General Electric would pay about $3.8 billion in cash and take on some $1.6 billion in debt in exchange for an 80 percent stake in the new company, which would be valued at about $40 billion. Vivendi Universal would own the remaining 20 percent of the new company, a stake worth more than $8 billion.

The deal would create one of the world's largest vertical media conglomerates, with combined 2003 revenues of $13 billion, according to the companies. Holdings would include the NBC television network, several cable networks, movie studio Universal Pictures and Spanish language broadcaster Telemundo. (Vivendi acquired Universal from USA Networks in December 2001 in a deal valued at $10.3 billion.)

Vivendi CEO Jean-Rene Fourtou said in a statement that the deal would allow the company to fulfill its plan of paying down some $17 billion in debt by 2004 while giving it a continuing interest in what would rank as among the most profitable media companies in the United States.

"VU is proud that it would have a 20 percent stake in such a company and I am personally happy to have the opportunity to merge VUE into an entity that will provide VUE with the complementary assets and means to develop its operations to the fullest," he said in the statement.

Fourtou has been seeking to unwind the work of his predecessor, Jean-Marie Messier, who had sought to transform a sleepy French utility into a modern media titan, straddling the Internet, television, music and publishing industries. But the plan faltered, with the company posting a $26 billion loss in 2002.

Under Fourtou, the company has focused on its telecommunications businesses, which include French cable company Canal Plus, phone company Cegetel and mobile service provider SFR.

Vivendi has attracted several suitors for its entertainment subsidiariary since announcing a planned sale earlier this year, in which it sought some $14 billion for the unit. Most bidders dropped out, considering the price too high. In the end, General Electric was left competing for the unit with a consortium led by Vivendi Vice Chairman Edgar Bronfman Jr.

"Now that VU's Board has decided to enter into exclusive negotiations with GE/NBC, I am hopeful that VU's strategic direction will reward its employees and shareholders for their patient and steadfast support," Bronfman said Tuesday in a statement.

Under Tuesday's deal, Bob Wright--General Electric vice chairman and NBC chairman and CEO--will lead the new company, while Vivendi will hold three seats on the new company's board.

"This transaction would create a media company that is superbly positioned to generate substantial growth both now and in the long term," Wright said in a statement. "The assets of NBC and VUE are extremely complementary, and the combination of VUE's rich content library, superior television production facility and attractive cable brands with NBC's industry-leading broadcast network and well-established cable properties could benefit shareholders for years to come."