NBC headquarters
30 Rockefeller Plaza
Executive office of Bob Wright, 52nd floor
New York City
There are times in your life when events change everything. They transform the way we live, work, and think. And so it was in August 2004. Just as my family was coming to grips with our grandson Christian’s diagnosis of autism, I was deep in the final stages of closing what would become the biggest deal NBC had ever attempted—acquiring the entertainment businesses of the French conglomerate Vivendi Universal. The stakes were huge. It is not overdramatizing the matter to say that the network’s future existence depended on a successful outcome.
At the same time, Christian’s young life depended on solving the puzzle of autism, a condition that was rapidly consuming his 2-year-old development and sense of wonder and devastating his parents. There was no national organization to provide any answers to families of autistic children. We were fighting that battle alone. Over time, there was no separating the angst and labor of these parallel challenges; they became the defining forces in my life.
Creating a merger with Vivendi Universal was a long, grueling process. Brandon Burgess, Robert Jaffe, and I had already been working on it for more than a year. The French conglomerate was a perfect strategic fit for the expanding NBC, which I was struggling to build, but it was not going to be easy.
Vivendi first appeared on our radar in early 2003. At the time, it was a classic story of corporate overreaching: a dysfunctional patchwork of utility and entertainment assets engineered by an ambitious, ego-driven chairman, the investment banker Jean-Marie Messier. When the crazy assortment of acquisitions began collapsing around his ears, Messier was booted out. Vivendi, with $18 billion in debt, was on the brink of bankruptcy. Now, desperate to cut their losses, they were looking for a white knight rescue and $16 billion in cash for their entertainment units. Messier’s failure was our opportunity.
The challenge—like the opportunity—was unprecedented. We not only had to win over Vivendi but also NBC’s corporate parent, General Electric. Once again, as often before, I found myself having to carefully maneuver between two very different cultures: GE’s buttoned-down industrial framework and NBC’s media mindset. That required a 2-pronged strategy that had to be executed with unbelievably delicate timing.
Vivendi owned the Universal film studio, Universal theme parks, big cable networks, and a TV production and distribution company, all of which were underperforming. We had to convince GE that NBC could improve those operations and that we would benefit from owning them. That was the key. I understood, with a deep certainty, what GE’s top management did not yet grasp—that the entire television industry was being turned on its head by cable and the Internet. NBC needed scale and balance to offset the coming tsunami, and acquiring Universal was the perfect solution.
GE never would have allowed us to acquire such unpredictable businesses separately, because it considered them high risk. The corporate giant, anchored in power systems, aircraft engines, and appliances, was unnerved by fickle consumer tastes. The idea of having its finely polished Six Sigma image tied to such pop culture hits as Meet the Fockers and Dawn of the Dead was distasteful, to say the least. The ebb and flow of our primetime schedule was about all the entertainment volatility GE could bear. To me, the irrational, cyclical success of films and TV shows was a risk pattern that, once understood, could be capitalized on.
Brandon Burgess, my chief deal strategist, had been making the case for a transformative acquisition since May 2002. That kind of prewiring and staging well in advance of asking GE to provide capital for something outside of its comfort zone was imperative. You could not expect GE to respond the way you needed it to in an auction timeframe.
At the time GE was satisfied that NBC’s broadcast business generated plenty of money, but we knew that would not last. Consolidation was coming, and we were not big enough. Even the French knew NBC was nearing a tipping point. The production pacts for Friends, Frasier, and Law & Order would end in 2004, and the rights would revert to the studios that produced them. At that point their robust ratings and profits would disappear into rerun syndication, a lucrative area in which NBC could not participate. That would weaken NBC’s advertising income and push NBC over what Burgess called “a linear cliff.” In particular, all 456 episodes of Dick Wolf’s Law & Order franchise, which had generated $1 billion for NBC since its 1990 premiere, would revert to its owner, Universal. All that would change if we owned Universal.
So, we had a 2-year window to replace those profitable primetime series with new programs that would generate the same kind of strong ratings and advertising revenues. Usually, that involved a scattershot process of trying new pilots and hoping the unpredictable TV fans would like some of them. That in itself was trying enough, but it was being complicated by a major shift in consumer habits toward subscription-based cable. And there was this new interactive platform called the Internet. It was the elephant in the room that no one at NBC wanted to talk about, or knew how to.
I thought NBC’s best defense was to invest its resources and GE’s money where consumers were going: cable channels and websites. They could provide an economic hedge to our fragile advertising base. The other networks were seeing the same trends and were responding with aggressive mergers and acquisitions. We were the only ones that didn’t have a strong entertainment cable presence. Acquiring Universal, we argued, would be NBC’s game changer, a bold but rational consolidation move with big global implications.
At the same time, we also had to convince the French that what we were proposing—a partnership and gradual takeover—would be better than the outright cash sale they wanted. A partnership would allow Vivendi to benefit from GE’s expertise and resources in creating a new company with more value and higher returns. Operating outside the traditional auction process right from the start with this strategy was part of what Brandon Burgess called “our charm offensive.”
We proposed a complex, ambitious merger between two “strategics”—two public companies with intersecting business interests but very different agendas and dynamics. We would have to manage this sprawling entertainment concern inside the GE conglomerate in a way that would help everyone feel comfortable and get their money back. That would mean integrating assets while realigning our primary cash contributor, the NBC TV Network, as we moved from a broadcast business to a subscription cable business. Our revenues would shift from 90 percent advertising at NBC and 100 percent fees at Vivendi to a 50/50 split after the merger. That was a pretty nice fit that took pressure off both companies.
But timing was everything.
A year earlier, we had looked at a possible merger with AOL Time Warner. They had lost more than $150 billion in market cap in the 2 years after the two companies merged. It would have been a steal, most likely executed as a hostile takeover. But GE’s board of directors feared the wrath of shareholders if NBC were to become tangled in a media debacle. Up until that time, our boldest acquisitions were only safe bets: gaining majority ownership of the Bravo cable channel from Rainbow Media and buying Telemundo, a major Spanish-language network.
So it was not surprising that GE chairman Jeff Immelt was cautious about our plan. His initial response was to limit GE’s investment to $500 million cash and the assumption of $1.9 billion in Vivendi debt. Burgess and I moved quickly to concoct a clever deal structure in which GE would make payments to Vivendi directly out of the newly merged company’s income. It was an arrangement not even Immelt could resist.
Our plan called for GE to be 80 percent managing owner of NBC Universal, with an option to buy the remaining 20 percent and take NBCU public within 5 years. In the meantime, we would pay the French about $800 million annually out of the company’s overall $3.5 billion earnings. Initially, GE would pay only $3.8 billion out of pocket to acquire Universal for $14.5 billion and assume $1.9 billion of Vivendi debt. At that time, NBC was valued at $22 billion with $1.6 billion in annual cash flow with all of its core news, sports and entertainment operations intact. The merged company would have a public value of at least $42 billion, putting it on par with peers like Walt Disney Co., valued at $43 billion, and Rupert Murdoch’s News Corp., valued at $41 billion.
Now we were ready to start negotiating in earnest.
◆ John Malone, president Tele-Communications Inc., Founding Chairman and CEO, Liberty Media. You go into these situations hearing what the other side wants and knowing what you want. But the chance of engineering a creative, tax-efficient deal that is a win-win for all concerned is always slim. It’s financial or structural problem solving—not something everyone enjoys or does well. It’s even trickier when it is a three-way negotiation that involves a corporate parent. So, it’s astounding to me that NBC Universal ever came to be! There was a severe mismatch between an industrial conglomerate that measured itself on quarterly earnings and a media company that was trying to grow and change within an industry that had completely different metrics.
The Universal deal took GE deeper into the media and entertainment business than GE chairman Jack Welch, at least, had ever intended to go. It forced GE to stop relying on the cash flow generated by NBC’s broadcasting to fund GE Capital, where the money could be invested at higher returns. It shifted the company’s focus and balance sheet to cable, where the earnings over time far exceed anything from NBC in its best days. I never understood why they didn’t just convert the NBC TV Network into a cable network. But the fact that Bob was able to finally pull it off under Jack’s successor, Jeff Immelt, was quite a miracle. And it didn’t hurt that Vivendi was so needy at the time. ◆
So Brandon Burgess fired off a letter to Paris detailing NBC’s merger rationale. The French responded almost immediately that they would listen. Our first formal presentation to Vivendi senior management was in the GE executive suite on the 53rd floor of 30 Rockefeller Plaza on May 28, 2003. They were upbeat and intrigued by the possibilities but restless about having to wait for their money.
We pointed out that over time, NBC’s management know-how would yield greater revenue and value. NBC already was the top-rated US broadcast TV network, NBC News was the leading domestic news organization, CNBC was one of the most popular cable networks, and Telemundo was the only dedicated Spanish-language channel among its peers. The merged company’s cable portfolio would stretch from USA and the Sci-Fi Channel (which was rebranded SyFy in 2009) to MSNBC and Bravo. NBC’s major TV production and syndication would be matched by Universal’s healthy film production and distribution and its library of more than 5,000 films and 34,000 hours of television.
Vivendi was looking for $16 billion, but in the end they went along with our plan because they could not get $14 billion from other auction bidders. Shareholders were pressuring the company to liquidate its assets and redistribute the cash so it could go forward with new cellular phone and energy businesses. So Vivendi concluded that our deal gave them a way out of the chaos and a second chance at life.
Part of our pitch to Vivendi was to point out that their cable network contracts were not being renewed and program distribution could not be guaranteed. David Zaslav explained how dangerous it was to so rapidly deplete revenues and profits, but he knew how to fix the problem.
We began hammering out more of the details in a meeting on July 8, 2003, in my executive dining room at 30 Rock. On the Vivendi side were Jean-Bernard Lévy, their chief operating officer, and his advisors, Bruce Hack and Robert DeMetz. Hack came to Vivendi from Seagram, owned by the Bronfman family. To show you how tangled up everything was, Seagram had sold its cable networks to Vivendi in 2000 and now wanted them back, because Edgar Bronfman Jr. missed being in the Hollywood limelight. DeMetz was a senior executive vice president overseeing Vivendi’s divestitures. Lévy was the senior negotiator; he was incredibly sharp and serious. They were all difficult to deal with and battled us on everything. They hovered over the process like commandos ready to strike. We knew it was not going to be a pretty picture.
A week later, both companies brought their 25-person negotiating teams of lawyers, accountants, and investment bankers to New York to fashion a deal under the code name Project Vineyard. The talks began with great intensity and enthusiasm, only to become mired in details. The negotiations were excruciating for both sides. They pored over critical issues and mind-numbing particulars, looking for ways to minimize risk and taxes while maximizing return on investment. I struggled to keep control of the process. We worked hard to use GE’s resources and clout as leverage while maintaining day-to-day control. There were endless, exhausting presentations to analysts, to GE and Vivendi executives, and to our own NBC personnel. It seemed that we were always trying to solve impossible problems and meet deadlines with insufficient data.
Vivendi CEO Jean-René Fourtou and I had many long, involved private meetings over lunch in my executive dining room. By late July, we were doing day-long meetings at 30 Rock, which then spilled over into working dinners. We wanted to transform Vivendi’s generic auction into an exclusive discussion with us as a preferred partner for the Universal assets. For their part, the French were comforted to some extent by GE’s credibility and balance sheet. They also did not want to deal with typical media types, and that gave us an edge over other bidders.
Still, John Malone’s Liberty Media, MGM billionaire Marvin Davis, Viacom, and Comcast poked their heads up for a look. Chuck Dolan’s Cablevision Systems made a joint bid with Edgar Bronfman Jr., whose strained sale of the USA Network to the French made him a liability. They all dreaded plowing through the complex agreements that had been negotiated by Messier, the deposed Vivendi chairman, including a film distribution arrangement with Steven Spielberg that would take time and money to unwind.
The most irritating matter Fourtou and I had to deal with involved high-powered media mogul Barry Diller. Years earlier he had sold Messier the USA and Sci-Fi cable networks in exchange for a 5 percent ownership stake in Universal. But the cable networks’ licensing agreements were about to expire and Diller had not renegotiated them, plus his original deal with Universal came with too many convoluted rights and conditions. In the end we opted to buy him out for close to $1 billion to protect our new company from any further disruption.
Incidentally, this wasn’t NBC’s first attempt to acquire Universal’s cable assets, or our first go-round with Barry Diller. In 1999, Jack Welch and I had been meeting with Edgar Bronfman Jr. to explore the possibility of merging NBC with all of his family’s media businesses, including the USA and Sci-Fi cable networks and Universal Studios. Despite his disdain for risky showbiz economics, Welch had supported the deal. The new merged company would have been headed by Barry Diller as chairman and CEO, and I would have been the chief operating officer. GE would have had a 60 percent stake and the Bronfman family 40 percent. In the end, Edgar Bronfman Sr. did not want to yield control of his media assets to anyone—not even NBC. Then, the very next year, the Bronfmans sold the cable networks to Vivendi, and so now they were back on the table.
Eventually, we were able to get our corporate agendas aligned in a way that made both Vivendi and GE comfortable, and the GE board reviewed and endorsed our strategic imperative on July 24, 2003.
◆ Brandon Burgess, Executive VP, NBC Business Development and Digital Media. This deal got done the way it did because it required the creative financing that GE could handle. But staging was critical, which is why we started planting seeds with GE management a year before we knew we would have to begin repositioning NBC. When you also throw in having to manage the French and Barry Diller, the Universal deal became one of the great juggling acts of all time. But if it hadn’t been for those complexities, we probably would not have been the preferred suitor or the winning bidder. If it were plain and simple, other companies would have won the prize. As long as we weren’t going to try to steal the assets outright, the deal was ours to lose. ◆
The next big issue was valuation: $5 billion for the USA cable network, $1.1 billion for the Sci-Fi cable network, $800 million for USA Studios and $3.1 billion for the Universal film studio. The negotiating teams battled over which assets would be part of the deal and which would be sold. GE was willing—but reluctant—to include Universal’s $1.3 billion theme parks just to get the deal done, but they drew the line at Vivendi’s struggling $2.4 billion electronic games unit. That particular issue provided one of the few light moments, and ultimately a nice touch of irony.
Burgess, who had suggested including the games company, wasn’t ready to give up. He found himself staying up very late at night, playing a beta version of an online game that Vivendi’s Activision unit was working on—a little something called World of Warcraft. The game was officially launched a few months after the merger (as the latest iteration of an existing Warcraft franchise) and instantly became a $1 billion phenomenon, completely transforming the video game sector.
By the dog days of summer, all Burgess and I had mustered was an agreement to continue negotiating. And then, in one of those amazing moments that you couldn’t arrange if you tried, everything changed. And Brandon Burgess was right in the middle of it.
◆ Brandon Burgess. Bob Wright and I on the NBC side and Jean-Bernard Lévy on the Vivendi side had put in many hours polishing a dog-and-pony presentation for Vivendi’s top brass and our banking advisors. On August 15, Vivendi expected to see
second-round bids to narrow the field of suitors. Lévy and I worked late on the 13th, kept at it overnight and into the next day. Suddenly, just after four p.m. on August 14, all the lights in the room went out.
It took us a few minutes to realize that the lights were out in the entire city. We read in the New York Times the next day that it was the largest blackout in American history. Hundreds of people were stuck in elevators, 600 subway cars were trapped underground, all airports and most communication systems were shut down. Restaurants were frantically cooking up all their perishables, ice cream shops were giving away their goods to anybody who walked by. The sidewalks and streets were jammed with thousands of people who had decided to walk home, dodging cars that had become stranded when the traffic lights went out.
What should we do? I figured, what the heck, let’s keep going. So I suggested we move over to my apartment, not too far away. I found a flashlight somewhere, and we made our way down the stairs, 52 flights. The whole city was dark and quiet. This total, eerie quiet. We got through the crowds on the sidewalk, and I led the way up 9 flights at my apartment building. Saira, who would soon become my wife, had gone out to get supplies from a neighborhood market, so we ate crackers and cheese by candlelight while we continued working.
At that moment, I knew the deal was sealed. I thought to myself, these guys wouldn’t be sitting here for hours by candlelight in my living room in midtown Manhattan if they didn’t intend to make it happen. By the end of that week, we celebrated the growing list of points the companies agreed on with a working lunch at 30 Rock, including foie gras Bob Wright had flown in.
A week later, on August 29, 2003, the two chief executives, GE’s Jeff Immelt and Vivendi’s Jean-René Fourtou, signed off on a preliminary deal. “Preliminary” meaning there was still a lot to do. We all continued working throughout that Labor Day weekend, except for me. I took time out Friday evening to get married. ◆
I knew this merger was the right thing to do. I really believed that NBC would be in real jeopardy without it. I had to keep reminding myself of that because there were many moments when my team and I were tested; too many problems that seemed insurmountable and too many impossible deadlines. Getting from the preliminary agreement in early September that simply stated our intentions to a detailed merger pact 4 months later was a real battle because it depended on a million things that had to be done. Either party could have walked away at any time—and almost did. What keeps you going under such pressure? Passion. A fierce commitment to getting the job done. Plus, in the end, like most tough negotiations, it came down to pure economics and relationships—most importantly the one between me and Vivendi’s salvation chairman, Jean-René Fourtou.
On September 28, 2003, in the midst of negotiating the final agreement, I went to Paris for several days to meet with Fourtou, just the two of us. We ended up talking about personal things like our backgrounds, our families, and interests. It created a new bond between us and completely altered our working relationship. It turned out Jean-René was not some artificial lump of bricks any more than I was. We still had the same issues, but now we had a little bit more latitude to deal with each other, and I had a more respectful view of him after that trip. To this day, I think of him with great fondness.
◆ Jean-René Fourtou, chairman and CEO Vivendi. I remember when Bob invited me to his home in Connecticut, and it was a very important visit because we all had very mixed feelings about these negotiations. Negotiating with GE was very difficult. My guys wanted to stop the negotiations all the time because it was very, very hard and very process oriented. You had the impression that you had a deal only to realize that you still had no deal. And, frankly, without Bob, we would never have finished. He has the personal qualities that make you want to do a deal with him. Bob was more of my world. He is not one of the California guys. ◆
I worked back channels to keep the deal alive when our own negotiating teams were in a stalemate. Twice, the French nearly pulled out of the negotiations, exasperated with the financial rigors of GE’s rigid process. The complexities of the proposed international match, which made this a dealmaker’s dream and played to GE’s strength, also nearly killed the deal. The negotiations almost always came down to two CEOs on the phone or in a room, hammering out the last tough fine points.
May 12, 2004, the day the NBCU merger finally closed, was the happiest day of my professional life. We had managed to engineer and pull off the kind of corporate marriage that no one, including the two parties, could argue with or sabotage. We had headed off all the challenges and potential pitfalls. It just made too much sense.
We all gathered in my New York office the night before—Fourtou, Lévy, Burgess, me, and a few others—to sign final documents and celebrate with champagne. The next day there was a bicoastal press conference and analyst briefing, and later an employee rally at Universal’s amphitheater in Los Angeles. At an afternoon employee town hall, I assured the troops—who had tolerated three new owners over the prior decade—that the power of GE’s balance sheet would enable us to take risks and make investments that would be otherwise impossible. With this integrated company, we were going to develop, produce, and market entertainment, news, and information across all the assets and create significant new value.
And we did. Consider that 8 years later, in 2013, Bernstein Research estimated the value of NBC Universal’s cable networks alone at $24 billion. Comcast CEO Steve Burke achieved $4 billion cash flow from NBCU that easily translates into $40 billion to $45 billion of market value.
NBCU’s financials strengthened almost immediately, as we had predicted they would. We promised and delivered on more than $500 million in synergies (cost savings and efficiencies) in the first 18 months. Revenues doubled to $15 billion while operating profits increased more than 25 percent. The merged company’s TV production arm became the third-biggest producer of television, behind only Warner Bros. and Fox.
Besides Brandon Burgess, many other team players from NBC and GE were instrumental in this success, including David Zaslav, Jeff Zucker, Randy Falco, John Eck, Bruce Campbell, and Rick Cotton.
From the beginning, I considered the merger a means to an end, a way to create the diversified media giant I had always envisioned. Universal’s cable channels changed everything for NBC, generating more than $2 billion annually, or more than twice the best revenues from NBC’s broadcast network. It capped $20 billion in deals Burgess and I engineered from 2000 to 2005 to hedge NBC out of a declining broadcast business and into the exploding global cable and Internet industries.
Universal was a homerun acquisition; it was about as good as you could get in the media business. I thought this was my crowning jewel because it gave NBC Universal all of the tools to be successful over a long period of time as a very large media company, whether GE owned it or someone else. And eventually, someone else would.
◆ Herbert Schlosser, early president NBC and mentor to Bob Wright. When you merge with another company, it’s never a slam dunk, and there never are any guarantees. But when you can do something entrepreneurial and create more than you begin with, that’s more than just deal making. Bob was in a position to seize the opportunity to get NBC more heavily into cable and help transform cable into a machine for creating unique content. Today, that all is at the heart of NBCU’s profits, and cable is television’s content core. ◆
Looking back now, I think the one reason I was able to maintain control during these difficult negotiations was that it actually gave me a sense of relief. In our family, we were all consumed with trying to help my grandson, Christian, in a situation that was totally out of our control. I had never felt so helpless. The Universal talks were long and delicate and sometimes messy, but at least I felt I knew what was happening and could reasonably control it.
By the time we were realizing closure on the NBC Universal merger in the spring of 2004, my family and I were desperately searching for ways to cope with Christian’s autism, which by then was dominating our lives.