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Why GE Should Sell NBC Universal to Comcast

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Read between the lines of the M&A denial.

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Comcast (CMCSA) is reportedly in talks with General Electric (GE) to acquire a stake in NBC Universal.

Comcast denies that it's reached an agreement to acquire the owner of the NBC network, but the deal would make sense and the denial may be artful.

The deal would give Comcast, the nation's largest cable company, key content -- a broadcast network, movie studio, and top cable outlets, including CNBC, USA, Bravo, and MSNBC.

Comcast has about 25 million cable subscribers, and several cable networks, including Versus, E! Entertainment Television, the Golf Channel and about 10 regional sports networks -- offerings that don't match NBC's content or clout.

The Wrap first reported the deal late Tuesday and Comcast quickly denied it.

But the denial appears to be narrow: "While we do not normally comment on merger and acquisition rumors, the report that Comcast has a deal to acquire NBC Universal is inaccurate," Comcast told The New York Times (NYT).

Has a deal? No one expects the deal to be wrapped up quickly, especially with what are sure to be tax implications for General Electric. Comcast didn't deny that talks are underway or that it's considering the deal, giving itself plenty of wiggle room.

Five years ago, Comcast attempted to buy Walt Disney Co. (DIS) for $54 billion, so no one will accuse the cable company of being timid.

Stephen Tusa, an analyst at JP Morgan Chase (JPM) recently pegged NBC Universal's value between $30 billion to $35 billion. General Electric bought NBC in 1986 for $6.5 billion. The broadcaster generates less than 10% of GE's total revenue.

NBC has struggled recently. Universal Studios hasn't had a solid hit. Worse, Eddie Murphy flopped in Imagine That last summer. The NBC network has slipped to fourth place in the ratings. NBC moved comedian Jay Leno to prime time, but the new program hasn't generated solid returns after an initial burst of interest.

Some analysts speculate that Vivendi, a French conglomerate that holds a 20% stake in NBC Universal, may want to sell before the end of the year. General Electric has first shot at Vivendi's interest, but may not be interested because entertainment isn't its core business.

There has long been chatter that acquiring NBC would make sense for Comcast or Time Warner (TWX). It's hard to imagine that GE is in love with its lagging entertainment division. Comcast's narrow denial may suggest that a deal is in the works.
No positions in stocks mentioned.
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