With $2 Billion Profit Potential GE (GE) Won't Sell NBCU

GE (GE) won’t sell its NBC Universal division, at least not at the price levels that are being rumored. It is unlikely that in the current economic environment that GE could get more than $30 billion for the unit, which is now an essential part of the conglomerate’s earnings.

Rumors of  a potential deal, though, abound.  Bloomberg News is reporting that the Philadelphia-based cable company is in talks with GE about taking a 50 percent stake in NBCU.  The New York Times chimmed in saying that Comcast “was one of several companies in talks about potentially buying a stake in NBC Universal.”

There is obviously lots of spin control going on here, but GE is not a desperate seller as it might have been a few months ago.  NBCU will probably make $2 billion in profits on $14 billion in revenue this year. Those numbers will be down from last year, but still represent an acceptable performance during a recession that has decimated a great deal of the revenue opportunity in the media sector. NBC was the beneficiary of advertising for both the Olympics and the presidential election last year.

If the recovery in the US economy holds, NBCU profits should make a modest rebound in 2010. The GE division has been brutal about cutting costs, and, as it looks at next year’s budgets, the cuts could accelerate. GE can assume, and probably assume correctly, that NBCU’s financial performance will be better next year and that multiples for media properties will rise. Time Warner’s (TWX) shares are still down almost 50% from two years ago, and CBS’s (CBS) are off 60%. Most Wall St. analysts are expecting sharp improvements in earnings per share at these companies next year.

GE may eventually sell NBCU, but by holding off for another year it will get a sharply higher price that what it could expect today.

Douglas A. McIntyre