The True Cost of GE's Ownership of NBC/Universal

An article headline in Friday's Wall Street Journal reveals the hidden, true cost of both former CEO Jack Welch's and his successor, Jeff Immelt's insistence that GE's entertainment unit, NBC/Universal. It read, "GE to Invest in Industrial Businesses," with the sub-headline, "Cash From NBC Deal Will Help Burnish Aviation, Health-Care and Energy Units."

It doesn't take a genius to figure out that if GE plans to use the proceeds of its media unit sale to invest in its industrial units, then they must have been starved of said investment for years. This is the hidden, true cost of unnecessary conglomeration in today's financial environment of inexpensive trading expenses and relatively easy access of companies to capital.

Granted, this year and late last year have seen credit tightening for small and marginal businesses. But, compared with the era in which Jack Welch took over GE, diversified conglomerates can now only be defended on the basis of being, in reality, closed-end investment companies.

If Immelt has decided that GE's industrial units required more capital than they have been allocated for years, doesn't this argue that they would have been better-managed as standalone units which could have simply gone to the financial markets for necessary, additional capital?

Here are two statements that can't be simultaneously true:

1. GE's corporate structure and existence benefit its component business units.
2. GE's ownership of NBC/Universal prevented necessary capital from being allocated to its industrial units.

We know, by Immelt's admission last week, that he believes the second statement to be true. Therefore, the first statement can't be true.

Of course, that first statement is Immelt's constant refrain for why GE exists and, by extension, his job does, too.

Nobody seems to be asking the hard, obvious question of the inept CEO of the ailing conglomerate, i.e.,

"Why does GE exist if, under its and your management, the company has starved all of its industrial units of needed capital while owning the financial services and entertainment units?"

Surely shareholders would have been far better off owning their individually-desired mix of equity in various GE units, as standalone entities, then they have been holding a single GE equity.

As I mentioned in this post, referring to the comments of a recent guest on CNBC,

"One of this morning's guests noted that GE ran with way too much short term debt and got caught last year in a refunding squeeze.

From that crisis, he asserted, came the idea to lighten the conglomerate's debt load by jettisoning the media unit. He then lamented that they did it at a time of such a low price for the unit. Finally, he noted, perhaps this would help remove "the conglomerate discount" in GE's price."

The "conglomerate discount" is why GE shareholders would be better off being allowed to choose which business units to hold as separate entities.

Any way you view it, Immelt has continued Welch's mistake of funding the entertainment units while unintentionally starving the industrial units of apparently needed investment, then suddenly changing his mind about the importance of NBC/U to GE, and dumping it at a low value.

Where's the outrage for this incompetent management by GE's CEO?