Should GE spin off NBC Universal?
General Electric Company (GE) seems to be in the news lately. Part of the reason could be its stock which has fallen 83 percent under its current CEO -- thanks in part to problems with its finance unit. But the other part is that its News and CNBC units are proving newsworthy. Unlike its competitors, NBC's news division is reportedly making a profit thanks to ratings leadership. And CNBC is enjoying a ratings boost and cross-over visibility -- through a lengthy mockery on Viacom's (VIA) Daily Show with Jon Stewart.
As a GE shareholder, I would love to be able to benefit from the profit growth that is likely to follow all that popularity -- and ditch the deathly financial services and other parts of GE that seem to be suffering from this Little Depression we're going through. Unfortunately, if GE spun off NBC Universal, it would mean ditching one of the only parts of the company that seem to be working well at the moment that could be sold with less disruption to GE's other operations. (Its Energy Infrastructure and Technology Infrastructure segments both showed stronger profit growth but they could be harder to sell in this environment and would be tough to disentangle).
As someone who has appeared on CNBC, most recently on Closing Bell with Maria Bartiromo (who sent me a nice thank-you note), I am not exactly objective about this. It's also hard to figure out what NBC Universal would be worth -- particularly because the best parts here seem to be the News and CNBC divisions -- and the other parts may not be enjoying the same profit boosts.
But NBC Universal did report 2008 profit of $3.1 billion which might be worth $23.8 billion if it was taken public at Viacom's P/E of 7.7 -- nearly twice GE's 3.94 P/E. I am not sure what is more surprising -- how low GE's and Viacom's P/Es are or how much lower the market values GE's earnings than Viacom's.
But there is no doubt in my mind that GE is smothering the shareholder value potential of NBC Universal -- and it would be nice if it could spin that value off to shareholders at the higher market rate for an entertainment company and use the proceeds to clean up its cash-sucking finance unit.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns GE shares and has no financial interest in Viacom.