The Wall Street Journal (Yahoo! preview) is the latest media outlet going after General Electric (GE-NYSE) for it to uncover some value. This report is suggesting a tie up between GE’s NBC unit and Yahoo! (YHOO-NASDAQ).
I did get a chuckle out of this considering it was about 3 weeks ago that I was on CNBC defending a "conglomerized" GE rather than a cadre of broken up smaller growth companies. My ‘opponent’ on the segment had suggested maybe that GE could sell NBC to Google (GOOG-NASDAQ) and I thought that was a bit odd considering that this would be a culture clash that would end up making the old Time Warner (TWX-NYSE) and the AOL staff combinations look like bliss. But I did note that even if GE shouldn’t spin-off NBC, that if they were going to do that then they should acquire Yahoo! and Then do a spin-off in the form of a tracking stock.
Before you go get all excited, keep in mind that all these calls for divestitures and mergers and reclassifications are really only "Bull Market Calls." If we are in a world that is normalized without private equity buying everything, without spin-offs happening daily, and without investment banking departments shaping every single sector then these calls won’t matter so much and will be swept under the rug.
It is easy to see that GE could unlock some value. NBC would almost certainly trade at a higher multiple than the cyclical manufacturing operations. But…..we are living in a world where activist investors and media is able to get away with acting like spoiled school kids who make annual interest in their trust funds than their teachers make in a lifetime. This may be the new paradigm on Wall Street, but this doesn’t last forever. Bull markets come and go, and at the end of the day there is safety to large diversified operations rather than a bunch of pure-plays that have to keep growing rapidly no matter what.
If there was infinite backing to this notion, then you’d probably be seeing more than a 0.5% gain in Yahoo shares pre-market. Could a deal happen? Of course, and we even gave a strategy that would let GE have the best of both worlds IF it wants to pursue this. But no one should be holding their breath waiting for this to occur.
Jon C. Ogg
May 14, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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