By Scott Malone - Analysis
BOSTON (Reuters) - General Electric Co’s sale of a majority stake in its NBC Universal media arm to Comcast Corp 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 the opportunity to redeploy $8 billion in cash back into a high-returning global infrastructure business,” GE Chief Executive Jeff Immelt said on a conference call. “We believe there are going to be multiple investment opportunities with attractive returns.”
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.
“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. “Let’s be sure that we don’t need it for our core businesses.”
The deal will face regulatory scrutiny in the United States and abroad, which GE expects to take nine to 12 months. That alone will give GE time to plan its next moves, and get a better sense of where the economy is headed, analysts said.
“Having (cash) sit on the balance sheet, given all of the uncertainty in the economic environment, is not a bad thing,” said Steven Winoker, an analyst at Bernstein Research in New York. “Right now it pays to be conservative given all the economic uncertainty that’s hanging out there.”
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, 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.
GE shares were up 16 cents at $16.23 on the New York Stock Exchange.
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 $154.67 billion in 2009 revenue.
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.
Some believe GE could try again to sell its appliance and lighting unit, but GE officials said they do not plan to.
“I would really look at the portfolio today as being very stable,” after the NBC deal closes and the company completes its restructuring of GE Capital, Immelt said.
Not everyone on Wall Street was convinced.
“That’s what you have to say at this point in time, until you have a buyer or you have another exit path,” Bernstein’s Winoker said. “Arguably it’s no more attractive as a business today than it was a year ago.”
GE’s dealmaking this year has been more successful -- in November it reached an accord to sell its security unit to United Technologies Corp for $1.82 billion.
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.
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.
The company is progressing in its wind-down of some parts of the financial business -- such as mortgages -- and is using the cash generated to fund growth elsewhere in GE Capital.
Daniel Holland, an analyst who covers GE for Morningstar in Chicago, said the NBC sale should salve worries about GE Capital.
“This takes the whole distressed equity raise scenario off the table,” Holland said. “It’s a good move for GE.”
Reporting by Scott Malone, editing by Dave Zimmerman