The objective of this study was to investigate the combination between Comcast and NBC Corporation and come up with important findings for this study. Comcast Company is one of the largest companies that dominate in media and entertainment activities .The company deal with production of cables that are used for distribution of both entertainments and sports news globally. The Company is of the largest cable and broad band provider in the United States. On the other hand, NBC Corporation is one of the baggiest media and entertainment companies in the world. In 2011, the company changed its Name to LLC with its head quarters based in New York. Recently, the LLC operates as a subsidiary of Comcast Corporation. The merger between the two companies was made after an approval of federal communication commission and after the mandate from the department of justice. The conditions of federal communication commission on this combination were anticipated to last for period of at least seven years. There was fear that Comcast would create restriction to the consumers to access the NBC programs. This is because Comcast Company is the manager of NBC Corporation and owns majority of stocks of the NBC universal corporation. When such situation happens, whereby, One Company owns 51% of ordinary stocks in the other company, acquisition may occur instead of mergers of equal. Therefore, the combination between Comcast Corporation and NBC Corporation was a kind of acquisition rather than a joint venture. This is because, Comcast Corporation owned majority of stocks 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 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 only with service provision but after merging with NBC Universal, the company becomes a content provider as well as a service provider. Additionally, both companies may have exposed themselves risk of new exposure. This risk which rises 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 pertaining trade marks and service marks respectively. Incase any claims pertaining the above, 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 claiming the infringement it may have expose the acquiring firm (Comcast) to the risk associated with such infringement. Comcast Company may have exposed itself to the risk associated with liabilities (Abelman & Atkin, 2011). This an happen if NBC Universal had any outstanding liabilities which it did not disclose prior to the enforcement of the agreement. The outstanding liabilities may force Comcast Company to Incur substantial financial losses as it try to repay the debts outstanding. The above situation could make the company to go under receivership upon the court warrant. The merging between the two companies could expose the merging firms into privacy risk. The risk occurs if the companies are unable to maintain the confidentiality of their customer’s information. This may make the companies to lose their key customers making the companies to get out of business. Finally, both companies may have exposed themselves to portfolio insurance risk whereby, exposing their insurance companies to payment of substantial amount money. This risk occurs if both 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 house that took control of almost every media activity in America and Asia. The merger provided the two companies with a broader market for investment in Asia and America which intern was to bring substantial return and overall growth between the two firms. Additionally, the merger was to provide gender, ethic 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 time may be assessed based on the profits and losses that the company is making. This assessment may help to determine the type of business strategies that may be employed to make the situation more favorable (Sherman & Sherman, 2011). Therefore, divesting involves selling some subsidiaries of the company that are not preforming well. General Electric Company may have wanted to divest itself because of the economic downtown the company was experiencing. The company focuses on production of electrical appliances and has numerous subsidiaries in various countries. In 1960’s, the GE company had become too voluminous in terms of size making it difficult to effectively manage all its subsidiaries (Abetti, 2011). In 1986 the company purchased an American Radio Corporation (RCA) which was a National Broadcasting Company (NBC) at a cost of $6.4 billions. However, in 1987, the company sold its own and ARC to a French Company in exchange of Diagnostics Business. The company justified the selling by asserting that, it intended to reduce its size so that it can compete well with lager companies. On the contrally, critics argued that the company was evading from foreign competition by making such sale. Others argued that, the company was feeling the heat of economic recession that was being experienced in the world during that period (Twair & Twair, 2010).
The type of 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. This is because, in margers of equal both companies have equal contribution and the number of CEO’S are 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. Additionally, it has been reported that Comcast bought fifty one percent of the stocks of 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 conditions include; Comcast Company was to give some management rights to Hulu Company which was owned by NBC universal and Walt corp. 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 forty nine point five dollars for each month for 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 to 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 percent of NBC Universal stocks upon 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 the same industry.
Discussion whether the combination was successful and how success is being measured?
The combination between two firms was successful because, it made the two firms to become a power house that took control of almost every media activities that took place in the world. Additionally, 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 to increase from 7.4 to 7.8 percent annually (Abelman & Atkin, 2011).Therefore, many firms use shareholders returns to measure the success of mergers and acquisition as discussed in this context.
Business combination between the two companies was successful as indicated by shareholders returns. However, despite the success both companies were being exposed to risk associated with mergers and acquisition which could have a negative impact to their performances if were not adequately addressed.
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