General Electric Corp., long eager to enter the broadcasting business, will purchase RCA Corp., parent of the NBC television network, for $6.28 billion in cash, the two companies announced late Wednesday.
Ending a fever of speculation that had sent RCA shares soaring in Wednesday's stock market trading, the two companies said that their directors have reached definitive agreements on what would be the largest merger outside the oil industry. The deal calls for RCA shareholders to receive $66.50 a share.
RCA has been the subject of takeover talk for months, fueled by the improved fortunes of NBC and the wave of mergers and acquisitions that has taken place in the broadcast industry.
ABC Also Merged
A takeover of RCA would mean that all three national networks have been the subject of merger activity this year. American Broadcasting Cos. is being acquired by Capital Cities Communications. CBS successfully fought off a takeover by cable entrepreneur Ted Turner but, in the process, was forced to take on substantial debt and sell off a number of assets.
General Electric, which makes a wide range of aerospace, defense and electronic products, is the nation's ninth largest corporation, with 1984 sales of $27.9 billion. RCA, one third its size, with 1984 sales of $10.1 billion, owns the NBC television and radio networks and makes and markets defense products, satellites, broadcast equipment and a range of consumer electronic products.
Ironically, RCA was organized in 1919 by Westinghouse and General Electric as a means of entering the new field of radio broadcasting. The company was spun off by the two in 1930.
In a joint statement issued Wednesday evening, General Electric Chairman John F. Welch and RCA Chairman Thornton F. Bradshaw and Chief Executive Robert Frederick said that the acquisition would be an "excellent strategic opportunity for the two companies."
The merger must be approved by the shareholders of RCA and regulatory agencies, including the Securities and Exchange Commission.
Several industry analysts said that the "fit" between the two companies was a good one and pointed to several reasons why RCA appealed to General Electric.
Owns 5 TV Stations
All broadcast properties have recently been seen as big money makers, and NBC has recently run away with top ratings in the prime-time viewing period. Also, NBC owns five television stations, including KNBC (Channel 4) in Los Angeles. The price of stations in major markets has soared this year as a result of a change in federal rules that increased to 12 from 7 the number of TV stations that a single owner may hold.
Moreover, RCA is cash rich, with about $2 billion in cash and equivalents, and has relatively little debt.
"The companies are both involved in defense and electronics, and RCA could use the help of a larger firm with some real financial resources," said Joel Krasner, an analyst with the Dean Witter Reynolds brokerage.
Price May Be Bargain
Another analyst suggested that GE may be getting a bargain price. He estimated RCA's breakup value at $77 a share, with the company's broadcasting properties alone worth $4 billion.
Part of RCA's cash hoard was raised by the company's sale of the Hertz car rental agency for $587 million to the parent of United Airlines earlier this year.
Both GE and RCA have lately been undergoing restructurings in which they have shed or pared back less profitable lines, including manufacturing operations that suffered from competition with lower-cost overseas producers.
The merger will also mark the end of RCA's recent efforts to avoid a takeover. The company had adopted a series of anti-takeover charter amendments to avoid the threat of corporate raider interest in its valuable NBC property and other assets.
Earlier this year, RCA had been involved in on-again, off-again merger discussions with Los Angeles-based MCA Inc., parent of Universal Studios.
One source, noting RCA's cash-rich position, said that executives had appeared "very nervous" in recent months about becoming the target of a hostile takeover. He and others commented that RCA President Frederick is a former GE executive who would presumably feel comfortable with the merger.
Another Wall Street analyst saw the move as a defensive one because RCA's management knew it faced a great risk of being swallowed up. "Even with a takeover of MCA, they could have been swallowed," said the analyst, who asked to remain unidentified. "This friendly deal assured that things would stay intact."
In Wednesday's trading, RCA shares jumped $10.75 to $63.50 at the close. The rise, on a volume of 5.2 million shares, brought the stock's two-day gain to $14.375.
Staff writers Kathryn Harris and Jay Sharbutt in Los Angeles contributed to this story.