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Wright feathering GE nest

Net topper pumps Peacock to parent's investors

NEW YORK — Peacock chief Bob Wright was on the stump Friday, pitching General Electric investors on the virtues of NBC and its newly prized position within the vast industrial conglom.

Speaking at a Banc of America Securities conference, Wright predicted NBC would see 18% profit growth for the full year 2003 to $1.9 billion, with cash flows up by a hefty 30% and revenues topping $6.7 billion. Similarly heady gains have helped GE’s lackluster stock in recent quarters.

And the Peacock’s current momentum relative to far more lethargic growth of the conglom’s GE Plastics and turbine engine division peers has recently been focusing shareholder attention on the prospects of increased investment in entertainment, long considered anathema to GE chief exec Jeffrey Immelt.

NBC’s margins are higher than at any other GE business, Wright said Friday, noting growth was coming from NBC’s cable nets, including recently acquired Bravo, and the Spanish-lingo market through Telemundo. He also said the broadcast unit is looking for further acquisition candidates, though he wouldn’t comment directly on the status of its negotiations for Vivendi Universal Entertainment.

While conventional wisdom in Hollywood is that Immelt hasn’t got the stomach for further showbiz investments, GE investors may be warming to the idea of a joint venture deal to merge NBC TV with VUE and its potential to actually increase the value of the parent company’s lackluster stock.

New research issued by JPMorgan Friday shows a merger and spinoff could add up to $2 billion in net income to GE’s bottom line and at least a dollar in per-share value — a prospect that could certainly sway Immelt to support Bob Wright’s low- to no-cash bid for VUE.

The bottom-line analysis may be working. In recent interviews, Immelt has come out sounding like a convert to the entertainment cause, driven in part by NBC’s strength relative to its GE peers and his desire to ensure its future growth in a competitive broadcast environment.

Nice fit

“We want to strengthen our TV network NBC in the U.S., and Vivendi Universal Entertainment would fit well with it,” Immelt told German daily Frankfurter Allgemeine Zeitung two weeks ago. He said GE’s chances of winning VUE in the auction are “100% if we agree on strategy and 0% if we don’t.”

Immelt said on a recent earnings call that he is working to unload underperforming businesses and invest in growing ones. NBC is the fastest growing — albeit one of the smallest —  divisions in the GE family.

“Our sense is that the level of interest at the company has increased since the process began several months ago,” noted GE analyst Don MacDougall of JPMorgan. MacDougall wrote to his investor clients Friday that a combined NBC-VUE spinoff would provide GE cash to speed up the planned transformation of the industrial conglom’s portfolio while providing immediate earnings gains to GE’s bottom line.

Peacock undervalued?

Many analysts contend NBC is undervalued within GE, and a spinoff of some kind with the added value of the studio and TV businesses would be a positive for GE stock. Immelt, who’s working hard to rejuvenate GE’s portfolio of companies, could deploy some of the cash from an NBC-VUE spinoff to speed up restructuring elsewhere in the company without jeopardizing its AAA-rated balance sheet. Furthermore, notes MacDougall, the IPO would provide NBC with stock currency to pursue future strategic buys.

The risk, of course, is that any non-cash deal would be complicated, and NBC’s structural terms are likely to be demanding. Immelt won’t want to issue too much GE stock for fear of diluting its already weakened shares. Furthermore, the company reiterated on Friday that there is currently no cash in its proposed deal. Viv U, for its part, is thought to want certain minimum guarantees on the exit value of its 25%-35% proposed equity stake in an IPO.