GE and RCA Say They Expect No Regulatory Obstacles to Merger

Officials of General Electric and RCA said Thursday that they expect no serious regulatory obstacles and little financial strain as they merge to create the nation’s seventh-largest industrial concern.

But the future of RCA’s management has not been decided nor have decisions been reached on how many employees or businesses might be shed as the two combine to form a $40-billion-a-year giant in aerospace, electronics, entertainment and services.

Explaining the $6.28-billion merger at a Manhattan press conference after the deal was announced late Wednesday, General Electric Chairman John F. Welch Jr. said officers of the firms had already called several senior federal officials to explain their plans and received an “enthusiastic” response. He declined to identify the officials but predicted that the two companies would not face antitrust objections because of their defense businesses.

The companies may be forced to sell off radio stations in the New York and Chicago areas, company officials said, because of Federal Communications Commission rules prohibiting companies from owning more than one station in the same area.

Welch also pledged that General Electric would not interfere with the autonomy of RCA’s NBC television network, either in the network’s programming or in the activities of its news division.

Meanwhile, the New York Stock Exchange said it was investigating recent activity in RCA stock to determine if anyone illegally profited before the news was disclosed. RCA stock jumped more than 20% in value Wednesday, closing at $63.50 in heavy trading. The shares closed Thursday at $59.25, off $4.25.

A spokesman said the exchange might take action itself or turn over any evidence to the Securities and Exchange Commission.

Welch said General Electric may borrow more than $4 billion from banks to make the purchase, which he said should be completed by the fourth quarter of next year. But the Fairfield, Conn.-based firm is known to have about $5 billion in available cash, and Welch said that, even after the merger, the company’s debt would make up only 30% of its total market value, which “is on the lower end of leverage for a major corporation.”

Industry analysts agreed that the merger would do little to strain General Electric’s finances and predicted that next year’s earnings will be depressed only slightly, if at all, by the deal.

The combined company will take General Electric’s name, and Welch and other top officers will remain in their posts, officials said.

RCA Chairman Thornton F. Bradshaw, 68, a former president of Los Angeles-based Atlantic Richfield, said he will remain chairman until the merger is completed and then will serve as a consultant to the company for three years.

Less certain is the future of Robert R. Frederick, 59, RCA’s president and chief executive, who was enlisted by Bradshaw from General Electric after he lost out to Welch in competition for that company’s top job.

Frederick said his future title at RCA has “not yet been decided.” Asked how he feels about giving up the leadership of an independent company, he said: “You have to have mixed emotions.”

Officials also declined to speculate about which businesses might be sold or cut back, saying such talk was premature. Both companies are major defense contractors, both own radio and television stations, make consumer products and market videocassette recorders made by Japanese firms.

Little Duplication

But officials insisted that, although the firms’ broad lines of business overlap, there is little duplication in specific product areas.

They said the new company would improve American standing in the international markets. Welch noted that General Electric has been the nation’s largest exporter in three of the last four years, and he said that a key motive for the acquisition was a desire to broaden GE’s domestic business enough to support its export effort. GE is a major exporter of a wide range of equipment, including aircraft engines, turbines and locomotives.

RCA’s strong domestic units, including NBC, would help maintain earnings in periods when overseas sales are weak, General Electric officials said. “American firms have to get stronger to compete in world markets,” Welch said.

He said the merger will accelerate General Electric’s move away from basic manufacturing--an area that has been hurt by foreign imports--to higher-technology products and services.

In 1980, he said, General Electric’s revenue was about evenly divided between the two areas. Today, about 70% of the company’s revenue comes from high-technology products and services, while that share will grow to 80% following the acquisition, Welch said.

RCA officials, meanwhile, insisted that they agreed to the merger for the financial support they would gain from an alliance with General Electric.

RCA’s move surprised many on Wall Street and stirred speculation that the move might have been at least partly motivated by a fear of corporate raiders seeking the company’s “crown jewel”--its television network. Others conjectured that RCA management might have simply realized that no defense would be available in the face of a cash offer with a certain strong appeal for shareholders.

But, in an interview, Bradshaw said RCA’s motivation was “not at all defensive.”

“We had every conceivable defense in place; we felt very strong,” Bradshaw said. “We wanted this deal because it was good for us and good for General Electric.”

First to suggest the deal was Felix G. Rohatyn of the investment banking firm of Lazard Freres & Co., who first brought together Bradshaw and Welch to discuss a possible merger on Nov. 6. Rohatyn has acted as RCA’s investment banker in recent years.

Made Offer Last Friday

Last Friday, Welch made an offer for the company in a room at New York’s Dorset Hotel, where Bradshaw is staying. Last Sunday, RCA’s board considered the offer in a lengthy meeting at the New York offices of its law firm, Bradshaw said. The boards of directors of both firms approved the deal early Wednesday evening, officials said.

Grant Tinker, NBC chairman, said he believes that General Electric does not want “managed programming, and certainly not managed news.” He said GE’s financial resources may be valuable if the network decides to expand.

While officials of the two companies were confident that there would be no antitrust problems, Sen. Howard M. Metzenbaum (D-Ohio), ranking Democrat on the Senate antitrust subcommittee, said the deal “on its face . . . raises serious antitrust questions.” He said he will insist on “full hearings” on the merger.

Roy Stewart, chief of the Federal Communications Commissions’s video services division, said the companies will need approval from the FCC before NBC ownership changes hands. But analysts predicted that receiving such approval would not be difficult.

They also predicted that the company would have little problem winning approval in the federal antitrust review that will be conducted by the Justice Department or the Federal Trade Commission. The agencies, which have joint jurisdiction, have yet to decide which will consider the case, a Justice Department spokesman said.

Described as Modest

Welch said General Electric has discussed “golden parachutes”--severance contracts--with about 60 RCA executives. But, while declining to give specifics, he said the deals were “modest by today’s standards.”

Wall Street analysts took a generally positive view of the deal, although several thought RCA might have fetched a higher price.

Analysts noted that, under Bradshaw’s four-year leadership, RCA’s stock price has risen fourfold and its earnings eightfold. Joel Krasner, an analyst with Dean Witter Reynolds, said that, at the $6.28-billion price, RCA was selling for about 15 times its annual earnings, “which is a good realistic valuation.”

NBC programming officials are optimistic that their new corporate owner won’t make big changes at the network. Part 6, Page 1.