Comcast Corp. (CMCSA), the largest cable MSO in the U.S., is all set to become a media powerhouse armed with a unique control over both content and distribution. The company will purchase 51% stake of NBC Universal from General Electric Co. (GE) for a total consideration of approximately $13.75 billion.

Comcast will pay $6.5 billion in cash and contribute cable channels worth $7.25 billion for its 51% stake in NBC Universal. General Electric will hold the balance 49% and it will have the option to sell half of its stake in NBC Universal after three and half years and the remaining stake after another three and half years. Earlier this month, General Electric agreed to purchase a 20% stake in NBC Universal from Vivendi SA of France for $5.8 billion. NBC Universal is also expected to raise $9.1 billion in debt, a part of which will be used to pay $5.8 billion to Vivendi.

Despite being the largest cable MSO of the U.S., Comcast is facing severe competition from both telecom and satellite service providers that started offering subscription TV services. Especially, telecom giants like Verizon Wireless (VZ) and AT&T (T) have started high-speed TV services using their fiber-based network. Moreover, online video from the Internet, which continues to increasingly distribute free movies also become a major threat to Comcast’s basic business model. In order to overcome this threat, the company was desperately looking to get hold of a vast content library to expand its own video-on-demand opportunities.

NBC Universal includes the flagship NBC TV network, the Telemundo Spanish-language network, Universal Pictures and theme parks, and about two dozen cable channels. If this deal gets regulatory approval then Comcast will be able to serve one-fourth of the U.S.’s pay-TV households supported by a large content-creation empire. As per fiscal 2008 financial results, the merged entity will manage assets with revenues of $51 billion out of which TV advertisement revenues alone were $9 billion.

Zacks Investment Research

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