December 3, 2009 / 1:29 PM / 10 years ago

NBC deal seen as a step toward more focused GE

BOSTON (Reuters) - General Electric Co’s (GE.N) sale of a majority stake in its NBC Universal media arm to Comcast Corp (CMCSA.O) marks a big step forward in what could be a time of significant restructuring at the largest U.S. conglomerate.

The long-expected sale of the media business, which accounted for about 10 percent of GE revenue, focuses the world’s biggest maker of jet engines and electricity-generating turbines more tightly on its core business of selling heavy equipment and financing the purchase of it.

The Fairfield, Connecticut-based company will receive about $8 billion in cash when the deal closes and gets the option to cash in the rest of its 49 percent stake in NBC Universal over seven years.

“We have many opportunities to invest in our high-technology infrastructure businesses at attractive returns,” GE Chief Executive Jeff Immelt said in a statement.

Investors reacted warmly to the idea of GE focusing in on its core businesses, and one warned that he expects the company to tread cautiously as it decides how to redeploy capital from NBC.

“Let’s not get too cavalier with that cash,” said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, which owns GE shares. “Before we go out and start frittering this cash away, let’s be sure that we don’t need it for our core businesses. Because those are pretty capital intensive.”

GE, which also makes railroad locomotives and medical imaging devices, has been increasingly focused on its business outside the United States, with emerging markets including China and India offering greater growth opportunities.

The sale follows years of questions from Wall Street about how NBC’s TV business, movie studio and theme parks fit in at the industrial heavyweight.

GE has been working on the three-way deal, which values NBC Universal at $30 billion, since March. French media company Vivendi SA (VIV.PA), which had owned a 20 percent stake in the operation, agreed to sell its holding for $5.8 billion, which cleared the way for the GE-Comcast joint venture.

STREAMLINING

Since the company started to stumble financially last year — in the face of the worst downturn the United States has experienced since the Great Depression of the 1930s — Immelt has explored a number of ways of streamlining GE, which analysts expect to generate some $154.67 billion in revenue this year.

Last year, GE tried unsuccessfully to sell its century-old appliance and lighting operation as well as its U.S. private-label credit card business.

The company’s dealmaking this year has been more successful — in November it reached an accord to sell its security unit to United Technologies Corp (UTX.N) for $1.82 billion.

Bernstein Research analyst Steve Winoker last month said in a note to clients that GE could sell off businesses that generated $25 billion to $30 billion of revenue over the next three years, by pruning GE Capital and unloading the appliance business in addition to NBC.

GE has done a steady stream of deals since Immelt took the helm in 2001, buying businesses worth about $279 billion and selling some $78 billion in operations — before the NBC deal.

EASING CAPITAL CONCERNS

The proceeds of the NBC deal should also help to ease Wall Street’s concerns about whether GE Capital — which has invested heavily in the now-slumping commercial real estate market — will require additional cash.

GE officials have repeatedly said that they believe the risks the finance arm faces are manageable and that they do not expect to have to raise additional capital. Last year the company sold $15 billion in new stock, including $3 billion to Warren Buffett’s Berkshire Hathaway Inc (BRKa.N).

Immelt said an interview on GE-owned CNBC business television that he believed GE Capital is “very well positioned for the future.”

Daniel Holland, an analyst who covers GE for Morningstar in Chicago, said the sale should salve worries about the finance arm.

“This takes the whole distressed equity raise scenario off the table,” Holland said. “It’s a good move for GE. It really helps them free up capital to areas where there is a tangible growth path for the company.”

Reporting by Scott Malone, editing by Dave Zimmerman

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