Chief executive of General Electric Co.(GE) Jeff Immelt will take the stage on Tuesday in New York to unveil the conglomerate’s strategic outlook for 2008. Investors will listen acutely for signs he will reduce GE’s sprawl to get the stock moving. Although Immelt may not be a follower of French fashion, he could learn a thing or two from Vivendi, the Parisian part-owner of NBC Universal Inc., GE’s television and entertainment division.
Vivendi’s deal last week to combine its video games unit with Activision Inc. creates a clear game plan Immelt ought to consider for businesses that don’t necessarily belong in the Fairfield, Connecticut-based GE’s massive portfolio. NBC is the prime candidate for such a manoeuvre, but so, too, are GE Money and its real estate operations.
Here’s the blueprint. Vivendi merged its games unit, maker of the World of Warcraft multiplayer game, with publicly traded Activision Inc. The value that put on the Vivendi assets, and some cash, gave the company led by Jean-Bernard Levy a 52% stake in the merged entity, which may eventually rise to 68% after a stock buyback. The transaction brought many benefits. It gives a market value to a business previously lodged inside the sarcophagus of a conglomerate. Second, Activision’s strength in creating games for consoles like the Nintendo Co. Ltd’s Wii fill gaps Vivendi had in its product pipeline. Thirdly, there will be synergies from crunching the two firms together. And though Vivendi hasn’t given up control, it created the option of spinning off the remainder of its stake to investors, or even selling it to raise cash for other acquisitions. Oh, and as a result of all this, Vivendi’s shareholders added as much as €1billion (Rs5,770 crore) to its market capitalization.
GE could pull such a deal for NBC, whose 2008 revenues will grow more slowly than other divisions apart from GE’s mature industrial arm, Lehman Brothers Holdings Inc. estimates. By merging NBC with, say, Yahoo Inc., GE could extract synergies, put a concrete value on the business and strengthen its Internet position. It would also give GE’s investors a choice as to whether they want to own a middling US media company—or would prefer the purer play, world-class infrastructure business that such a spin-off would create. Bonne chance, Monsieur Immelt.