Posted: May 12th, 2015

An examination of the Comcast and NBC Universal business combination

Introduction

This paper focuses on the investigation of the combination between Comcast and NBC Corporation and establishes important findings. Comcast Company is one of the largest companies that dominate in media and entertainment industry. The company deals with production of cables that are used for distribution of both entertainments and sports news globally (Noam, 2001). The Company is the largest cable and broad band provider in the United States. On the other hand, NBC Corporation is one of the biggest media and entertainment companies in the world. In 2011, the company changed its name to LLC with its headquarters based in New York. Recently, the LLC began to operate as a subsidiary of Comcast Corporation. The merger between the two companies was made after the approval of Federal Communication Commission and the mandate from the Department of Justice (Abelma & Atkin, 2011).

The conditions of the Federal Communication Commission on this combination were anticipated to last for a period of at least seven years. There was fear that Comcast would create restriction to consumers in accessing the NBC programs. This is because Comcast Company controls the NBC Corporation and owns a majority of the shares of the NBC Universal Corporation. In situations where one company owns more than 51% of ordinary stocks in the other company, acquisition may occur instead of mergers. Therefore, the combination between Comcast Corporation and NBC Corporation was an acquisition, as opposed to a joint venture. This is because Comcast Corporation owned a majority of shares in the NBC universal Corporation.

Why the combination between Comcast and NBC was potentially risky and rewarding?

The combination between the two companies was potentially risky. This is because both companies were exposing themselves to various risks of operating in the same industry. For example, Comcast Company exposed its self to the risk associated with diversification (Noll, 2001). Initially, Comcast Company dealt with only service provision. However, after merging with NBC Universal, the company became a content and service provider. Additionally, both companies may have exposed themselves t the risk of new exposure. This risk arises as a result of failure of risk managers of the acquiring firms to conduct an assessment of whether the target firm has any claims from other companies. This is in respect to trade marks and service marks. Incase of any claims, Comcast Company may have exposed itself to the risk of law suits and could be forced to pay some damages by the court of law. On the contrary, if the target firm (NBC Universal) had received a letter prior to claiming the infringement, it may have exposed the acquiring firm (Comcast) to the risk associated with such infringement. In addition, Comcast Company may have exposed itself to the risk associated with liabilities (Abelma & Atkin, 2011).

This can happen if NBC Universal had any outstanding liabilities that were not disclosed before the enforcement of the agreement. The outstanding liabilities may force Comcast Company to incur substantial financial losses in repaying the outstanding debts. The above situation could make the company go under receivership. The merger between the two companies could expose the merging firms into privacy risk. The risk is highly prevalent among media companies. The risk occurs if the companies are unable to maintain the confidentiality of their customer’s information. This may make the companies lose their key customers making the companies get out of business. Finally, both companies may have exposed themselves to portfolio insurance risk. In this case, the companies will expose their insurers to the payment of substantial amount money. This risk occurs if the merging companies have gaps in their insurance portfolios (Abelma & Atkin, 2011).

On the other hand, the combination between the two companies was to bring a lot of benefits to both companies. This is because the venture provided both companies with the biggest power that took control of almost all media activities in America and Asia. The merger provided the two companies with a broader market for investment in Asia and America. In turn, this was to bring substantial return and overall growth between the two firms. In addition, the merger was to provide gender, ethnic and racial diversity among different communities.

Speculations as to why General Electric may have wanted to divest itself from the management of NBC Universal

Financial performance of a firm for a given period may be assessed based on profits and losses that the company is making. This assessment may help to determine the business strategies that could be adopted to make the situation increasingly favorable (Sherman & Sherman, 2011). Therefore, divesting involves selling some subsidiaries of the company that are not preforming well. The General Electric Company may have wanted to divest itself because of the economic downtown that the company was experiencing. The company focuses on the production of electrical appliances and has numerous subsidiaries in various countries. In 1960s, the GE Company had become very voluminous in terms of size. This complicated the situation in the company’s quest to effectively manage all its subsidiaries (Abetti, 2011). In 1986, the company purchased an American Radio Corporation (ARC) that was part of the National Broadcasting Company (NBC) at a cost of $6.4 billions. However, in 1987, the company sold its own stake in ARC to the French Company in exchange of Diagnostics Business. The company justified the selling by asserting that it intended to reduce its size so as to compete well with larger companies. On the contrary, critics argued that the company was evading foreign competition by making such a decision. Others argued that the company was experiencing the heat of economic recession that was being experienced in the world during that period (Twair & Twair, 2010).

The business combination and consideration made between the two firms

The combination of Comcast Corporation and NBC Corporation was more of an acquisition rather than a merger of equal or joint ventures. In mergers of equals, both companies have equal contribution. Also, the number of CEOs is equal among the merging firms (Sherman & Sherman, 2011). However, this was not the case between the two firms. It can be observed that there were some considerations that Comcast Company was to execute prior to acquiring the NBC Company. Also, it has been reported that Comcast bought fifty one percent of the stocks of the NBC Company. When this situation happens, the target firm becomes the owner of the acquiring firm.

The strict considerations were set by the Federation Communication Commission (FCC). Among the consideration, Comcast Company was to give some management rights to Hulu Company, which was owned by NBC Universal and Walt Corporation. Comcast Company was supposed to make its streaming services available to NBC Universal. The Federation Communication Commission required Comcast Company to make broad band services available to customers at $49.5 for each month in the next three years (Sherman & Sherman, 2011). The aim of these considerations was to prevent Comcast Company from becoming a monopoly business. Absence of the above considerations could make Comcast Company force its customers to purchase cables and broad band services from them at an exorbitant price. Therefore, Comcast Company was supposed to acquire fifty one per cent of NBC Universal stocks. Nonetheless, this was to be after compliance with all the above conditions as stipulated by the Federation Communication Commission (FCC). The commission intended to ensure that there was a fair competition between Comcast Company and other companies that were operating in the same industry.

Discussion on whether the combination was successful and how success is being measured

The combination between two firms was successful. This is because it made the two firms become a powerhouse that took control of almost all media activities that took place in the world. Additionally, the Comcast Company had been experiencing a capital appreciation of 7.4% annually as a result of such business combination. On the other hand, shareholders of this company received an additional dividend that made their returns increase from 7.4 to 7.8 per cent annually (Abelma & Atkin, 2011). Therefore, many firms use shareholders returns to measure the success of mergers and acquisition as discussed in this context.

Conclusion

Business combination between the two companies was successful as indicated by shareholders returns. However, despite the success, both companies were being exposed to risks associated with mergers and acquisition. This could have a negative impact on the performances of the companies in the event the situation was not adequately addressed.