As GE revamps, NBC expected to stay in the picture

By Paul Thomasch and James Kelleher - Analysis

NEW YORK/CHICAGO (Reuters) - General Electric Co's insistence that it won't sell its NBC Universal media division has been downplayed, discounted and outright ignored -- until the recent financial crisis.

Now, as GE (GE.N) tries to rationalize its holdings by selling some businesses and spinning off others, analysts are betting NBC Universal will remain within the company. But that doesn't mean the media division -- facing some major hurdles -- receives a free pass.

"I've struggled with it forever, in terms of why GE has it, especially now in a situation like this where ad revenues are down," says Mike Gandrud, senior analyst at Optique Capital Management in Milwaukee, Wisconsin. "I'd love to see them do something with it ... Do I expect it to happen? No."

That's a change from what had been a widely held view among investors, analysts and media-watchers that GE would sell NBC Universal shortly after the Olympics, which it broadcast to record audiences in August.

Indeed, the notion that GE would like to sell NBC Universal has circulated for years, and gained momentum 18 months ago when Citigroup analyst Jeffrey Sprague bluntly called the conglomerate to unload its 80 percent stake. France's Vivendi (VIV.PA) owns the other 20 percent.

But the credit crisis has suddenly changed prospects of selling NBC Universal, which includes the NBC broadcast network; cable channels Bravo, USA, The Weather Channel, Oxygen and Telemundo; news outlets CNBC and MSNBC; TV stations; theme parks; a film studio and digital assets.

MISSING THE WINDOW

Though NBC Universal is the obvious odd man out in GE's portfolio, and faces a tough near-term outlook as the economic downturn pinches advertising revenue, it does something very important in uncertain times: it generates cash.

That's a big plus for the parent company, especially as GE Capital, the specialty lending unit, struggles to shrink its receivables and right itself amid the continuing turmoil in financial markets.

Even so, analysts admit confusion over Chief Executive Jeff Immelt's attachment to NBC Universal, given GE's insistence that its infrastructure business represents its future.

Daniel Holland, an analyst at Morningstar, calls NBC a "sideshow" that diverts management attention -- and capital -- away from more deserving businesses with higher returns.

But he doesn't see the point in dumping NBC at a time when other GE businesses are struggling.

"It's generating substantial value right now," he says.

In addition the credit crisis will make it harder for would-be buyers to finance a deal, and Holland thinks GE wouldn't get a decent price right now for NBC. "The last time you want to sell something is when the price you're going to get is below what it would generally command," he says.

Holland points to the trouble GE is having getting rid of its appliances division.