General Electric shares were up sharply today on a report from JP Morgan suggesting that NBC Universal could be worth between $30 billion to $35 billion. JP Morgan analyst Stephen Tusa's positive note on General Electric sent shares up 4.57 percent, or 63 cents, to $14.52 in trading just ahead of today's close. They had closed at $13.87 before the holiday weekend.
The analyst wrote, "Signs of life in the media M&A may rekindle hopes of a strategic move at NBCU. We think a move here could unlock $30 billion of value, meaningful at 20% of General Electric's market cap, and a significant positive given mixed recent history."
Tusa's previous report on NBCU's future at GE--published in April 2008--suggested the company was worth as much as $44 billion. Back then GE said firmly it wasn't selling the media company. Since then the housing market collapse crippled GE Capital, GE lost its prized triple-A debt rating in March and has had to cut its dividend. Tusa, however, feels the future is only going to get better for the company and the time is ripe for capitalizing on interest in NBCU.
Separately, Disney's $4 billion acquisition of Marvel and other non-media deals such as the Kraft bid for Cadbury has whet the appetite of market investors for some bigger-size merger and acquisition activity. General Electric has previously said that it won't off-load NBC Universal, though Time Warner and Comcast are viewed as potential acquirers. Time Warner might be particularly interested in the cable portfolio but might be less interested in the network.
Tusa said 2009 will be viewed as a bottom for NBCU, but better days are ahead as the ad market improves. In the note he writes, "Longer term we continue to believe that there are strategic alternatives for NBCU, an asset that has little synergy with the rest of GE and that we believe, under reasonable assumptions, is commanding no value in the GE stock price."
The analyst suggests a break-up might be possible given that he estimates the network is losing money and the cable unit is still growing. "This could be done by either GE, or by making the asset more attractive for a strategic player who could buy NBCU whole and fund/execute a transaction."
Tusa's calculations suggest profit at NBC network will be down 26% this year, but he predicts an upswing in 2010. Tusa's analysis suggests 40-50% of NBCU's revenue is derived from advertising. He raised his rating on GE from overweight to neutral and raised his price target to $17 per share, up from $12.
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