GE May Want to Go Halves on NBC
Amid a flurry of reports that General Electric may sell its NBC subsidiary for $5 billion to Walt Disney Co., sources said Wednesday that GE Chairman Jack Welch prefers a complicated proposal to sell roughly half the business to Time Warner.
“He would rather stay in the business,” said one knowledgeable executive. “He would rather strengthen the company.”
But a myriad of regulatory problems could snag the Time Warner discussions, and even the tough-minded GE chairman will come under pressure from the Wall Street investment community if Disney makes an offer for the entire company. According to sources, Disney has discussed the idea of offering mostly cash and some convertible preferred stock for the network, its station group and CNBC.
Nothing is likely to happen with NBC in the next day or so, sources said, despite leaks to the New York media about the Disney talks. The NBC-Time Warner discussions are said to be proceeding slowly, and several Wall Street analysts and bankers interpreted the Disney stories as an effort to spur an auction or test the market’s reaction to a Disney bid.
In addition to Disney and Time Warner, published reports have identified Turner Broadcasting System and ITT Corp., which recently acquired Madison Square Garden and other assets for $1.07 billion with Cablevision Systems Corp., as other possible bidders.
ITT denied having “ongoing” discussions with NBC. Ted Turner, who would desperately like to add a network to his media domain, remains in discussions. Even though Turner has been stymied before by regulatory and ownership obstacles, sources say he’s more willing to deal now and that he and other suitors should not be counted out.
“The sharks are just starting to circle, that’s all,” said one knowledgeable entertainment source. “There is no front-runner. There’s been no major movement at all.”
In trading on the New York Stock Exchange, Disney shares fell $1.00 to $41.375. GE rose 75 cents to close at $50.25, while Time Warner closed at $36, down 50 cents.
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On Wall Street and in Hollywood, people were divided on the competing NBC scenarios.
To some, Time Warner looks like the best candidate because it is already a dominant supplier of prime-time network programming and is in the throes of creating a fifth network. If Time Warner could acquire the NBC network with some significant stake or option to buy the NBC-owned-and-operated TV stations down the road, it might also thwart the unwelcome investment by Canadian brewer Seagram & Co. (Foreign ownership of TV stations is restricted under federal law.)
Time Warner, complained one investment banker, “is overly hung up over regulatory issues” limiting cross-ownership of cable TV and broadcast properties. “Do away with Mr. Bronfman!” the banker said, alluding to Seagram’s chief executive.
Others, however, favor Disney. It has the strongest balance sheet, no conflicting cable TV interests and only one broadcast TV station, KCAL in Los Angeles. “I think it’s a terrific deal for Disney,” said a senior executive at another broadcast company.
Merrill Lynch analyst Harold Vogel noted that “Disney’s balance sheet can support a $5-billion acquisition quite easily, and they have the expertise, clearly, to run a network programming operation.” With the recent proliferation of networks, Vogel predicted that production costs will rise as companies vie for Hollywood talent.
Still, those who know Disney Chairman Michael D. Eisner well cautioned that he has never been willing to pay a huge sum for an acquisition and “runs big risks” with any network acquisition.
“Doing NBC is a major step. It’ll redefine the entire company,” said one industry chief executive, who nevertheless predicted that Eisner will make the move.
Two Wall Street analysts said Wednesday that a $5-billion price tag could be justified on NBC’s estimated cash flow of $400 million.
But other broadcast executives noted the cyclical nature of the broadcast business and warned that future earnings will be hurt by the rising cost of production and keeping affiliate stations in line.
Affiliates have been negotiating richer deals from all three major networks, due to News Corp.’s campaign to sign up stronger local stations for its Fox Broadcasting Co. At the same time, networks have undertaken more in-house production of TV series with the easing of federal restrictions that once forced them to rely on Hollywood studios as suppliers. In-house production will enable the networks to reap long-term profits from hit shows, but it also means they will be forced to absorb losses on their failures.
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Analyst Jeffrey Logsdon of Seidler Cos. in Los Angeles said now is a great time for GE’s Welch to make his best deal, no matter which suitor he prefers.
“NBC’s annual cash flow has moved from $150 million at its weakest point around 1990 or ’91 to $300 or $400 million now that advertising has dramatically improved. If someone wants to exit the business, the next six months are the most advantageous time.”
NBC’s Suitors
At least four companies are said to be eyeing NBC. They include two entertainment conglomerates, a cable giant and a manufacturing-communications firm.
* Walt Disney Co.: With 1993 sales of $8.5 billion and a profit of $299 million, the company is in theme parks, movie and TV production and distribution, and consumer marketing.
* ITT Corp: Had 1993 sales of $22.8 billion and a profit of $913 million. This diversified conglomerate combines manufacturing and communications expertise with financial management and insurance services.
* Turner Broadcasting System: Sales of $1.9 billion and a loss (after an extraordinary charge) of $244 million in 1993. Turner is in cable TV broadcasting and production, movie production and distribution, TV syndication and 24-hour news programming.
* Time Warner Inc.: Sales of $6.6 billion and a loss of $221 million in 1993. The company is in book and magazine publishing; motion picture and TV production and distribution, and cable, music and retailing.
Sources: Company reports; Bloomberg Business News
Researched by ADAM S. BAUMAN / Los Angeles Times
