WASHINGTON – For General Electric Co., the NBC entertainment division was always an odd fit.
One of the nation’s iconic industrial businesses, GE has spent 23 years making sitcoms and blockbuster movies along with jet engines, dishwashers and light bulbs. The pairing of glitzy entertainment and gritty manufacturing has often confounded investors and even has been ruthlessly satirized by NBC’s own show “30 Rock,” in which a fictional network executive also heads a division that programs microwave ovens.
It’s a marriage that will likely soon end. Comcast Corp. announced Thursday it plans to buy a majority stake in NBC Universal for $13.75 billion, allowing the GE conglomerate to shift its focus back to its industrial divisions.
GE is shrinking its finance arm, which has been severely buffeted by the financial crisis. It has sold some businesses and shopped others around. And it is chasing nearly $200 billion in stimulus money from worldwide governments, much of it earmarked for such products as medical equipment and wind turbines. This new GE will likely look a lot like GE did before it acquired NBC in 1986.
“When you are running a company like GE, your roots are ultimately in manufacturing,” said Nicholas Heymann, an analyst with Sterne Agee who once worked for GE as an auditor.
GE has reached an agreement to buy out the 20 percent stake in NBC Universal that is held by French media company Vivendi SA. GE and Comcast are expected to turn NBC Universal into a joint venture, with Comcast holding a 51 percent stake. GE would likely fully leave the partnership in a few years.
The financial crisis and recession of the past year have been difficult for GE, which is based in Fairfield, Conn., and has 323,000 employees. The company was forced to slash its dividend by 68 percent. It lost its coveted top bond rating and its stock fell as much as 90 percent below the peak it had hit in 2000. GE is still trying to work through big losses at its GE Capital lending unit, once the source of half the conglomerate’s profits, in areas like commercial real estate and credit cards.
GE earned $8.1 billion over the first nine months of this year on revenue of $115 billion – but that marked a 43 percent drop in profit and a 15 percent revenue decline.
NBC Universal has been one headache. The unit includes Universal Pictures movie studios, the NBC network, the Universal Studios chain of theme parks, and such cable channels as USA, Bravo and Syfy. The unit has suffered from the recession, with a drop in broadcast advertising and some flops at the box office, such as “Land of the Lost.”
Operating profit fell 27 percent in the first three quarters of this year. The NBC network ranks fourth in ratings and is cutting down on scripted shows to save money – reflected in its heavily promoted move of comedian Jay Leno to the 10 p.m. slot.
That’s a contrast to NBC’s stature when GE took it over in 1986 as part of its acquisition of RCA Corp. for about $6 billion.
The move was part of then-CEO Jack Welch’s shake-up of GE, which included selling major business divisions and growing the financial division. Buying NBC, the eventual home to such hit shows as “The Cosby Show” and “Seinfeld” and the Olympics, was Welch’s way of generating a reliable source of cash to counterbalance the challenges GE’s manufacturing businesses faced from overseas competitors, Heymann said.
Merging NBC into GE’s strait-laced corporate culture proved a challenge, said Noel Tichy, a University of Michigan professor who led GE’s leadership training program at the time.
Tichy said NBC executives chafed at letting GE take over management of the network.
“They thought we were a bunch of metal benders coming to pillage the NBC peacock,” he said.
These days CEO Jeffrey Immelt hopes to find stability for GE in a flurry of new products, including cheaper medical equipment, such as a hand-held ultrasound machine.
GE has identified clean energy as another growth area, with smart grid technologies that are meant to make electricity consumption more efficient.
As it refocuses, GE has shed units such as its fire detection and electronic security business, which it sold this fall to United Technologies Corp. for $1.82 billion. In the past several years, it has spun off its insurance division and its U.S.-based home mortgage unit. The company put its consumer unit, which makes dishwashers, refrigerators and other appliances, up for sale last year, but is holding on to it now that it couldn’t find a buyer.
The Comcast deal is expected to bring in some needed cash. GE is expected to net $5 billion to $7 billion from Comcast by forming the partnership for NBC Universal. GE would also be able to transfer about $8 billion to $10 billion in debt to the joint venture.
The changes also could make GE much easier for investors to analyze. The entertainment industry, in which factors such as TV ratings are used as a measure of success, is much different from industrial companies that are evaluated on tangible products they make and sell.
Without NBC, GE “does get cleaner,” said Peter Sorrentino, senior portfolio manager of Huntington Asset Advisors, which owns 6.4 million GE shares. “We’ve got one less distraction.”
