It's official: General Electric Co.'s NBC has agreed to buy cable network
Bravo from Cablevision Systems Corp. and Metro-Goldwyn-Mayer Inc. for $1.25
billion in stock and cash.
Cablevision's $1 billion will come in GE stock and 53.2 million Cablevision
class-A shares, or approximately 16 percent of those outstanding shares. MGM
will get $250 million in cash for its 20 percent stake.
According to sources familiar with the deal, NBC's Cablevision shares will be
valued on a 20-day average, ending two days prior to the closing date, expected
by year-end.
The Cablevision stock also has collars ranging from $8.42 per share to $12.63
each, so the higher Cablevision stock climbs, the lower the number of GE shares
that will be issued. The GE shares will be valued on a 10-day average ending two
days prior to the closing date.
Cablevision stock rose 16.8 percent, or $1.69 per share, Monday to $11.78
each in 4 p.m. trading. GE stock was up 50 cents to $26.50 per share.
The deal works out to be nearly 23 times Bravo's 2002 estimated cash flow of
$55 million and about 19 times 2003 estimated cash flow of $65 million.
In a report, Deutsche Bank Securities Inc. cable and satellite analyst Karim
Zia said the deal was a good one given the current economic climate.
Zia said Cablevision could sell the GE stock -- estimated to be worth about
$463 million -- to satisfy its expected 2003 funding shortfall. Zia estimated
Cablevision's funding deficit to be in the $400 million range, while other
analysts have pegged the shortfall at between $500 million and $1 billion.
One analyst who asked not to be named said the Bravo sale is a good start,
but Cablevision shouldn't stop there. He added that Wall Street is expecting
sales of its AMC network (formerly American Movie Classics), its
direct-broadcast satellite venture and its Northcoast wireless-telephony
licenses to help pay down debt.
'[Cablevision is] not home-free,' the analyst said. 'It isn't just the
funding gap -- they're too highly leveraged. They dodged the bullet, but the gun
is still loaded.'
As of June 30, Cablevision had $9 billion in debt, or about 7.3 times
adjusted operating cash flow.
Several analysts have valued AMC at about $2 billion, or 15 times 2003 cash
flow of $135 million. Analysts have justified the lower multiple because
although AMC has begun selling advertising on its network, it is far short of
the 15 to 17 minutes per hour most cable networks average.
This year AMC began selling ads at the beginning, intermission and ending of
its movies.
Bravo, known for such shows as Inside the Actors Studio, has about 68
million cable and satellite subscribers. It adds an entertainment outlet for NBC
shows and bolsters NBC's cable stable of CNBC and MSNBC and slices of
ValueVision (ShopNBC), A&E Network and The History Channel.
For Cablevision, it helps to uncomplicate the balance
sheet of an MSO facing a funding gap in 2003 and cultivating such outside
interests as developing a direct-broadcast satellite service, preferably with a
deep-pocketed partner.
NBC said it saw 'strategic opportunities across many divisions, including
multiplatform advertising sales and promotion, news, entertainment and sports
programming.'
NBC Studios and NBC Enterprises could develop 'original NBC/Bravo crossover
projects, including reality shows, new series and specials,' NBC added.
NBC News archives could be used for documentaries and entertainment shows and
'to support existing programs such as Bravo Profiles and Inside the
Actors Studio,' the network said.
Bravo 'will have the opportunity to participate with NBC
on major events, specials and awards show programs. As part of the NBC family,
Bravo will also have greater opportunities for movie acquisitions,' NBC added.
NBC doesn't plan to turn Bravo solely into a repurposing outlet for
programming from its broadcast network, according to David Zaslav, president of
NBC Cable. He said Bravo will continue to be a niche service, doing arts and
entertainment fare, with original programming, as well as off-network shows.
'Bravo is a great fit with NBC, and it's a great opportunity for us to get a
lot of talented people at NBC involved in cable who otherwise have been on the
sidelines,' Zaslav said.
'Bravo is not going to win and differentiate itself long-term by rerunning
off-network content,' he added, 'Its heritage is arts and entertainment, and we
want to be true to that and build on that with an interesting mix of content
that captures that niche.'
NBC's goal is also to boost Bravo's distribution from 68.5 million homes to
80 million, according to Zaslav. He declined to comment specifically on any
potential layoffs, saying NBC and Cablevision officials will sit down to discuss
which Bravo employees may go over to NBC or stay at
Cablevision.
