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Can MSNBC rescue parent company GE? That is, can the blatant fluffery of Keith Olbermann be converted into bailout cash from Uncle Sam? As GE tumbles toward breakup on its own, the last hope for saving the ungainly conglomerate appears to be politics. Fortunately for GE, this is a season for "bailouts" and "stimulus."
"GE shares fall as profit drops 46%"--that's the headline in The Chicago Tribune yesterday as Wall Street absorbs the continuing cascade of bad news from the over-extended conglom. For a couple of years now, The Cable Gamer has been predicting the breakup of GE. The basis of my prediction was the obvious mismatch between GE, a manufacturing and finance company, and its media subsid, NBC-Universal. After all, everyone has figured out by now that "synergies" are mostly bogus, and so the whole theory that GE could be maximally effective in both, say, plastics and, say, celluloid was a falsehood. It was a falsehood sold to then-CEO Jack Welch by then-underling Robert Wright; Wright had ambitions of Louis B. Mayer-type moguldom and so convinced Welch. But Wright, of course, was a no-talent, who vastly overpaid for things and people, including Chris Matthews.
Welch retired in 2001, his corporate legend slightly besmirched by Wright's excesses, and now further besmirched by the obvious error of picking Jeff Immelt as his successor. And Immelt's eight years at the top have further demonstrated the wisdom of non-conglomeration. Immelt might be good at something--most likely, in his original specialty of manufacturing. But he let himself be hypnotized by the serpentine charm of Jeff Zucker, who has carried NBC from first to fourth, and kept MSNBC right where it's always been--third place.
And so TCG always figured that if NBC-U were spun off, as part of a de-clustering of GE, then NBC and its other media properties would get better management, because the shareholders of an indy company would see clearly the misfeasance of the current bunch of "managers."
But then came the subprime mortgage meltdown, a field in which TCG claims no competence. But of course, as the record shows, GE's Immelt has no competence either. He was obviously not paying attention--or did not understand what he was seeing--as a hughe subsidiary, GE Capital, engorged itself with under- and now non-performing loans. Once again. the clear lesson is that conglomerates don't work. Immelt was focused on medical equipment purchases while NBC turned south, and while GE Capital plummeted to the south pole.
So the pressure should really be on GE now, because we have yet to find the bottom on the mortgage meltdown/recession.
But the paradoxical effect of the meltdown has been to make some of GE's subsidiaries worth more to the company, not because of their financial performance, but because of their political performance.
That's right: there is one ray of hope for GE: Uncle Sam. As TCG has noted, the feds have already come to the rescue of GE Capital--and by extension, the rest of the company--to the tune of hundreds of billions of dollars. The feds were happy to see Lehman Brothers go bankrupt, and Bear Stearns disappear, but more politically favored companies, such as AIG and GE Capital, were pulled back from the brink by the taxpayers, like it or not.
And now, the new President is Barack Obama, whom MSNBC so strongly supported last year and supports this year. And given the evident willingness of the Obama Administration and Congress--yes, including you Barney Frank, for steering $12 million to your homies--to play bailout favorites, don't be surprised if Obamans are happy to steer money toward MSNBC's sister company, GE Capital, knowing that their "investment" will be rewarded. (And since that "investment" is someone else's money, well, that makes it all the more painless to the "investors.")
Of course, it's still possible that all this bailing out won't work--because GE Capital is in such a deep hole, sucking the rest of the company down with it. That's the argument made late last month by financial observer Bill Paxton in a post at Online-Stock-Picks.com under the blunt headline, "GE: don't buy, here's why":
A lot of people I've been talking to are real financial bulls on GE (General Electric), I say stay away from this stock and here's why.
GE is not really a "diversified industrial corporation;" it's more of a highly leveraged financial conglomerate that will be in deep doodoo as $100's of billions of debt starts coming due in 2009. Last week's much ballyhooed announcement of how they plan to re-invent themselves in '09 sounds good in sound bites for the press, but the probability that they can actually turn those plans into reality is slim. (They've already tried to sell some of their industrial divisions without success.) Outside of their financial group, a lot of their manufacturing divisions fall into categories now in decline--aircraft parts, home appliances, lighting fixtures, broadcasting, etc. (And GE's struggling financial operations have traditionally financed big-ticket sales for their industrial divisions--think GM/GMAC.) No doubt they'll eventually be classified as "too big to fail" and get a government bail-out but not before their common stock has been totally trashed.
GE is actually in a mess with declining sales volume across all lines of business. GM is looking to return two corporate jets leased from GE Capital. No takers for the sale of their credit card business and also no takers for the appliance business with the Korean announcing publicly that they were not interested. Medical equipment sales will be down significantly as hospitals cut back on capital budgets due to markedly lower donations during the tough times (some of the very wealthiest donors have been hit the hardest in the market meltdown ).
Their large industrial loan portfolio is underwater as customer default rise and late payments payments increase dramatically. Aircraft leasing is softening fast as consumers stay home instead of flying. IN short I cannot think of one reason to own this stock. I do not for a minute believe that they can maintain the dividend for the entire year. The div of $1.24 does not compare favorably to the much reduced earnings now cut by some analysts to $1.65 (not much wiggle room here at all). And didn't Citicorp swear on a stack of bibles a year ago that they would not be cutting the div when Merideth Whitney said they would absoluely have no other choice (and they cut in not once but twice). Also heard the same kind of assurances from Lehman Brothers when David Einhorn had the temerity to point out their improper marks on Level II and level III assets. GE has a ton of debt some 600 Billion, with lots of level II & III and they are not disclosing the marks on it, This is an accident waiting to happen. Go to seeking alpha and read their insightful analysis for good hard look inside GE.
GE's exposure to the financial crisis is too great and the giant is destined to fall further. But that could mean that GE has to try all the harder.
Interestingly, Paxton put up that comment on December 21, when GE's stock was $16.50. On Friday, it closed at $12.03, which is a drop of nearly 30%. How much more can GE fall? It's been a long slide from the peak of the Welch era, when the stock was nearly 60.
But as Paxton shrewdly observes, "No doubt they'll eventually be classified as 'too big to fail' and get a government bail-out but not before their common stock has been totally trashed." Which is to say, the company will be rescued from bankruptcy by the feds, but not before there's a lot more pain for shareholders. And no doubt a lot more Obama-sucking-up by Olbermann, Matthews, and all the rest, who don't need to be reminded that dismal Nielsens aside, the audience that really matters for MSNBC is inside the White House. So get ready for a lot more Obama praise from MSNBC, and, for good measure, CNBC and NBC.
You can count on it. Keith, you've been a star performer in Obama's troupe for a couple of years now, but soon, you are REALLY going to have sing for Jeff Immelt's supper.
Cross-posted from The Cable Game.