General Electric Co (GE.N) expects to return about $18 billion to investors this year as it sells its remaining stake in NBC Universal, a move that executives said should allow it to achieve its long-held goal of buying back the shares it issued in the depths of the financial crisis.
The sale, which came more than a year earlier than expected, is the latest step in Chief Executive Jeff Immelt's campaign to refocus the largest U.S. conglomerate back on its industrial roots.
The news sent shares of the world's biggest maker of electric turbines and jet engines up 3 percent, to their highest point since October 2008, when the financial crisis was threatening to undermine the company.
In a Wednesday morning conference call with analysts and investors, Immelt emphasized that he would stick with the company's current capital allocation plan, which calls for buying back shares, raising its dividend and pursuing small acquisitions typically no larger than $3 billion.
That is change from what GE did in 2010 and 2011 with the first half of its money from selling NBC Universal to Comcast Corp (CMCSA.O), when it embarked on a $12 billion wave of takeovers to boost its presence in the energy sector.
"This allows GE to focus completely on the industrial business," said Zahid Siddique, associate portfolio manager at the Gabelli Equity Trust, a GE shareholder, though he added that he would not be surprised if the Fairfield, Connecticut-based company eventually used some of the NBC proceeds to expand its presence in the mining sector, an industry that GE officials have called attractive.
Bernstein Research analyst Steven Winoker noted that even with GE's plan to buy back $10 billion of shares this year, it could end up with as much as $15 billion to put towards takeovers.
This year's buyback should reduce the company's share count below 10 billion, said Chief Financial Officer Keith Sherin. GE currently has 10.49 billion shares outstanding, according to Reuters data.
GE said it would pay $3.2 billion in cash taxes on the deal proceeds.
OVERCOMING THE HANGOVER
Wednesday's rise in GE shares, up 77 cents to $23.35 on the New York Stock Exchange, helped erase a dramatic slide during the financial crisis, when its shares briefly fell below $6 amid fears that a shaky GE Capital could bring down the entire enterprise.
Prior to selling NBC, GE had focused much of its efforts in recent years on scaling back its financial arm, making it less dependent on short-term funding and focusing more closely on a handful of operations, such as financing the sale of industrial equipment and lending money to mid-sized businesses.
GE could yet sell or further scale back its mortgage business and commercial real estate holdings as it continues to scale back GE Capital, which it wants to generate no more than 30 to 40 percent of its profit, executives said.
"Around the portfolio, the focus is on getting the industrial earnings mix up to 60, 65, 70 percent (of total company profit) over time," Immelt said. "We're always going to look at ways to do that by growing our earnings and reducing GE Capital."
END OF AN ERA
GE acquired NBC in 1986, a deal that gave it its iconic New York building at 30 Rockefeller Center, and for years company officials argued that the growing entertainment empire, which later expanded to include Universal studios, was an important part of its diversification strategy.
But GE gave up on that approach, selling 51 percent of NBC Universal to Comcast in early 2011, after concluding that the industrial disciplines that made the company the world's largest maker of jet engines and electric turbines did not apply to entertainment.
Indeed, the popular "30 Rock" television program on NBC routinely made fun of the idea, starting when the character played by Alec Baldwin was transferred from a fictional microwave division to run NBC.
The show continued to track GE's corporate history, eventually having the network sold to "Kabletown."
GE executives clearly relished the glamour of owning a television studio, for instance holding annual December investor meetings at the studio where "Saturday Night Live" is produced.
(Editing by Gerald E. McCormick and John Wallace)