An Examination of the Comcast and NBC Universal Business Combination
Introduction
Comcast Company is one of the largest companies dominating the media and entertainment industry. The company manufactures cables that are used in the distribution of entertainment and sports news (Noam, 2001). The Comcast Company provides cables and broadband services in the United States. On the other hand, NBC Corporation is one of the biggest companies in the media and entertainment industry. In 2011, the company changed its name to NBC LLC. The headquarters of NBC is based in New York. Recently, the NBC LLC started operating as a subsidiary of Comcast Corporation. The merger between the two companies was created after the approval of Federal Communication Commission and the Department of Justice (Abelma & Atkin, 2011).
It was anticipated that the companies would adhere to the provisions of the Federal Communication Commission. There was fear that Comcast would restrict consumers from accessing the NBC programs. Notably, Comcast Company controlled the NBC Corporation. This is because it owned a majority of the shares of the NBC Universal Corporation. In situations where a company owns more than 51% of the other company, acquisition occurs and not a merger. Therefore, the strategy of Comcast Corporation and NBC Corporation was an acquisition. This is because Comcast Corporation owned a majority of shares in the NBC Universal Corporation.
Reasons as to why the combination between Comcast and NBC was potentially risky and rewarding
The combination between the two companies was risky. This is because the two companies were exposed to various risks by operating in the same industry. For example, Comcast Company was exposed to the risk associated with diversification. The company had few products to diversify. Therefore, through the merger, the company was forced to introduce the diversification strategy (Noll, 2001). Initially, Comcast Company was a service-oriented company. However, after merging with NBC Universal, the company started selling content and services products. In addition, both companies were exposed to the risk of new entrants penetrating the market. This scenario increased the level of competition in the market. This risk occurred as a result of failure by risk managers from the acquiring firms to assess the capacity of the acquired company. This aspect affected the companies in a number of ways, especially in regard to the trademarks and service marks. Comcast Company was exposed to the risk of lawsuits, and the company could be forced to pay damages. On the contrary, if the target firm (NBC Universal) received a letter prior to claiming the infringement, it would have exposed the acquiring firm to the risk (Abelma & Atkin, 2011).
In addition, Comcast Company was exposed to the risk associated with liabilities. This scenario could have happened if NBC Universal had any outstanding liabilities that would not have been disclosed before the enforcement of the agreement. The outstanding liabilities forced Comcast Company to incur substantial financial losses in repaying the outstanding debts. The above situation made the company undergo receivership. The merger between the two companies exposed the merging firms to privacy risk. This risk is prevalent among media companies. The risk occurs when companies are unable to maintain the confidentiality of the customer’s information. This can make the companies lose key customers. Finally, the two companies were exposed to portfolio insurance risk. This risk occurs when the merging companies have gaps in the insurance portfolios (Abelma & Atkin, 2011).
It can be asserted that the combination between the two companies aimed at bringing a lot of benefits to the companies. This is because the venture empowered the two companies. The companies speculated that they would dominate the media industry after establishing the merger. The companies had an objective of controlling the media industry in the US and Asia. The merger provided the two companies with a broad market for investment both in Asia and America. In return, this was to bring substantial profits and overall growth to the two firms. The companies also aimed at creating 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 in a given period may be assessed based on profits and losses that the company is making. This assessment determines the business strategies that can be adopted to make the situation favorable (Sherman & Sherman, 2011). Therefore, divesting involves selling some subsidiaries of a company that are not preforming well. The General Electric Company wanted to divest because there was economic downtown that the company was experiencing. The company focused on the production of electrical appliances and had numerous subsidiaries in various countries. In 1960s, the GE Company expanded its operations around the world. This led to the creation of many subsidiaries in many countries. As the number of subsidiaries increased, the management and operation of all business activities became complex (Abetti, 2011).
In 1986, the company purchased the American Radio Corporation (ARC), which was part of the National Broadcasting Company (NBC) at a cost of $6.4 billion. However, in 1987, the GE Company sold the ARC to a French company in exchange for Diagnostics Business. The company justified the selling by asserting that it intended to reduce its size so as to compete successfully with large companies. On the contrary, critics argued that the company was evading foreign competition by making such a decision. Others argued that the company was affected by the economic recession that was prevalent during that period (Twair & Twair, 2010).
The business combination and consideration made between the two firms
The business combination of Comcast Corporation and NBC Corporation was more of an acquisition rather than a merger of equal or joint ventures. In mergers of equal companies, the companies have equal contribution. The number of CEOs is equal in the merging firms (Sherman & Sherman, 2011). However, this was not the case in the combination of the two firms. It can be observed that there were some considerations that Comcast Company was to execute prior to acquiring the NBC Company. It has also been reported that Comcast bought fifty one per cent of the stocks of the NBC Company.
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 broadband services available to customers at $49.5 each month in the subsequent three years (Sherman & Sherman, 2011).
The aim of these considerations was to prevent Comcast Company from becoming a monopoly. Absence of the above considerations forced the customers of Comcast Company to purchase cables and broadband services from the NBC at an exorbitant price. Therefore, Comcast Company was supposed to acquire fifty one per cent of NBC Universal stocks. This strategy was to be implemented after complying with all 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 (Abelman & Atkin, 2011).
Discussion on whether the combination was successful and how success is being measured
The strategy to combine the two firms was successful. This is because the two firms became a powerhouse that controlled almost all media activities. Additionally, the Comcast Company experienced a capital appreciation of 7.4% annually as a result of such business combination. On the other hand, shareholders of the Comcast Company received an additional dividend that made the 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
The strategy to combine the two companies was successful as indicated by shareholders’ returns. However, despite the success, the companies were exposed to risks associated with mergers and acquisition. This had a negative impact on the performance of the companies given that the situation was not addressed. It is important for companies to assess the market situation before creating strategies to merge with other companies. All the risks associated with mergers should be calculated to reduce the probability of the mergers failing.
References
Abelman, R., & Atkin, D.J. (2011). The televiewing audience: The art and science of watching TV. New York: Peter Lang.
Abetti, P.A. (2011). General Electric at the crossroads: the end of the last US conglomerate? International Journal of Technology Management, 55(1), 345-368.
Noam, E.M. (2001). Interconnecting the network of networks. Cambridge, Mass: MIT Press.
Noll, A.M. (2001). Principles of modern communications technology. Boston, Mass. [u.a.: Artech House.
Sherman, A.J., & Sherman, A.J. (2011). Mergers & acquisitions from A to Z. New York: American Management Association.
Twair, P., & Twair, S. (2010). Campaign Aims to Divest State Funds From Corporations Enabling Israeli Occupation. Washington Report On Middle East Affairs, 29(9), 42-43.