GE's little NBC problem

(breakingviews.com) -- If NBC Universal was an independent media group -- rather than part of financial-industrial conglomerate General Electric -- would "30 Rock" just have won another five Emmy Awards? For that matter, would the sitcom lampooning life at a television variety show on a network controlled by GE even have aired?

This isn't just an existential question. Vivendi, the French telecoms mishmash, is widely expected to exercise its option to sell its 20% stake in NBC next month. That could force GE (GE, Fortune 500) either to divest all or part of its media business or, if it can find the cash, to buy the stake. On the face of it, the timing couldn't be worse. But the private equity industry might be able to help out.

Selling NBC now would increase GE shareholders' exposure to GE Capital. Concerns about the financial division's asset quality and funding sources have helped slice nearly $200 billion off GE's market capitalization since 2007. Bereft of NBC, the financial arm would account for closer to 40% of sales as against about a third today, according to Morgan Stanley's forecasts for next year.

Moreover, because of GE Capital's need for funds -- or at least investors' concern over funding -- GE may not be in a great position to acquire Vivendi's stake in NBC, either. At seven times earnings before interest, tax, depreciation and amortization -- about where News Corp (NWS, Fortune 500), Disney (DIS, Fortune 500) and Time Warner (TWX, Fortune 500) trade -- NBC is worth $21 billion. So to acquire the stake, GE would need to find at least $4 billion.

Investors might support such a deal if they felt taking full control of NBC was the right strategic move. But beyond helping GE procure prime seats for its executives and clients at glitzy events like the Beijing Olympics, the logic in owning a film and TV group alongside businesses like leasing, aircraft engine manufacturing and household appliance production is hard to fathom.

What GE really needs is time. And private equity could provide it by acquiring Vivendi's stake, helped by a modest amount of debt -- perhaps even provided by GE Capital itself. That would give GE time to stabilize GE Capital and prepare a parting of ways with the finance arm. Then at least it could think about NBC's future on its own merits.