BOSTON (Reuters) - A deal to sell a majority stake in NBC Universal could be great timing for General Electric Co, turning a potentially ill-timed expense for the largest U.S. conglomerate into a pile of cash.
GE shareholders reacted warmly to news on Thursday that GE was in talks with Comcast Corp about potentially shifting the NBC media business into a joint venture that would be majority owned by the No. 1 U.S. cable operator, according to a person familiar with the matter.
The world’s largest maker of jet engines and electric turbines has held an 80 percent stake in the media giant since 2004, but the future of its partnership with Vivendi SA comes into question each fall, as the French company has an option to sell its minority position.
Vivendi has not yet said if it will move to sell or spin off its 20 percent stake in NBC Universal. It has the option of doing so from November 15 to December 10.
While GE has the option to buy Vivendi out, investors said they hoped the Fairfield, Connecticut-based company would not choose to do so in the face of an uncertain global economy.
“If you take (GE Chief Executive) Jeff Immelt’s commentary seriously, where he thinks the economy is in for a slow recovery, then the industrial side of the business needs every dollar it can keep,” said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, which owns GE shares.
Selling a 51 percent stake in the media business to Comcast would give GE an infusion of cash at a time when its hefty GE Capital arm faces the risk of rising defaults on its loans.
The move could allay fears on Wall Street that the company would need to turn to investors for additional capital, as it did a year ago today when it said it would sell an additional $15 billion in shares — including a stake in the company to Warren Buffett’s Berkshire Hathaway.
GE officials declined to comment on whether GE was in talks with Comcast over NBC, as did Comcast officials — though Comcast did deny a Web report that a deal had been reached.
The source with knowledge of the talks cautioned that no deal was imminent.
As with any negotiation, investors said that price — how much GE would have to pay to buy out Vivendi and what Comcast would pay for a stake in the business would be key.
“I suspect the pricing would end up being neutral, that the earnings GE loses would be made up for by the cash they receive,” said Bernstein Research analyst Steven Winoker. “They would end up with more cash in the company, and that would ease some continued concerns about their capital adequacy.”
GE officials have repeatedly said they do not anticipate another capital raise.
Over the past two years GE has demonstrated that it is ready to walk away from potential deals when it cannot find a buyer offering the right price. It put both its appliance unit and its U.S. private-label credit card businesses on the block, only to decide not to sell either operation.
“The other businesses that they tried to exit were difficult businesses in trying circumstances,” Winoker said. “NBC Universal, with its cable business, is a very attractive asset, more so than the other businesses that were put on the block.”
The recession has taken a toll on NBC Universal. Its profit was down 43 percent through the first six months of 2009, but still a less-steep drop than GE’s finance and consumer and industrial arms experienced.
Selling a majority stake in NBC would also leave the company more focused on its heavy industrial businesses, which have been its strongest performers of late.
Backing out NBC, which represented 9 percent of GE revenue through the first half of the year, industrial businesses would represent almost two-thirds of its revenue, with GE Capital accounting for about one third.
GE has long faced calls to sell NBC, though they have been heard less frequently over the past year as investor concern has focused on the finance business. But Immelt has said repeatedly that GE is committed to the media operation and that it helps GE to do more business at high-profile events like the Olympic Games, which GE sponsors and NBC broadcasts.
However, some investors said they have never been convinced of the connection between producing TV shows and movies and selling wind turbines and railroad locomotives.
“The synergies weren’t there,” said Mike McGarr, portfolio manager at Becker Capital Management in Portland, Oregon, which holds GE shares. “Our original hope was that after the Beijing games they would do something with it, but as the economy deteriorated it became tough.”
McGarr said he had been “dreading” the question of what might happen if Vivendi decided to sell its stake in NBC.
A tie-up with Comcast, he said, “solves that situation.”
Reporting by Scott Malone; Editing Bernard Orr