“Beyond Fear” at GE: Why Jeff Immelt Let NBC Slip Away

Hello and welcome back to Dry Powder.

In today's email: My account of what may have been one of the worst media deals in history—Jeff Immelt's fire sale of NBCUniversal to Comcast at the height of the financial crisis—which continues to reverberate through Hollywood, Silicon Valley, and Wall Street to this day.

Bill

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The Worst Media Deal in History?

NBCUniversal is now probably worth well north of $100 billion—a significant chunk of Comcast’s $230 billion market value. So why the hell did GE sell it for $30 billion a decade ago?

WILLIAM D. COHAN

Back in October, I shared the story of the first professional masterstroke of David Zaslav, the new King of Hollywood, who was part of the team of legendary GE executives, along with Jack Welch and Bob Wright, who first saw the promise of cable television through their ownership of NBC. In 1989, with Wall Street still enduring one of its periodic post-crash malaises, NBC paid $140 million for half of Chuck Dolan’s Rainbow Properties, a goodie bag of cable assets that contained Bravo, AMC, and other sports broadcasting entities. Welch, Zaz’s mentor, also pushed for deals to acquire Court TV and The History Channel. Welch and Zaslav, among a few others, were also the driving forces behind the creation of both CNBC and MSNBC. When everyone else was playing the linear game, the GE executives foresaw the dawn of the next epoch.

If GE was clever enough to see around the corners of network television, why wasn’t it able to envision the inevitable pivot toward streaming content over the Internet directly into our homes? This phenomenon, of course, has created behemoths out of the likes of Netflix, Disney, and Zaslav’s about-to-be merged company, Warner Bros. Discovery. In fact, streaming and the streaming wars are pretty much all anyone in Hollywood is talking about these days—and pretty much all that Wall Street is valuing in these companies—as my partner Matt Belloni has documented beautifully.

There are two main reasons for GE’s blind spot. Part of the answer lies with personnel. By the time Netflix pioneered the streaming revolution, in and around 2011, the ranks of GE executives had been depleted of its cable pioneers. Welch had retired as GE’s C.E.O. in September 2001; Zaslav left GE in January 2007 to run Discovery; Wright retired as a GE vice-chairman in 2008, having been kicked up and out of NBC years before; and Tom Rogers, who arguably was the most important and visionary cable executive at NBC, left the network in 1999 to become C.E.O. of a magazine publisher before becoming C.E.O. of Tivo. As the old saw goes, “personnel is policy,” and so before Reed Hastings even had the vision to start talking about replacing Netflix’s red envelopes with bits and bytes, GE no longer had the A team in place to think through the idea of delivering content directly into peoples’ homes through a high-speed cable connection.

But the bigger problem for GE was financial—a pinched panic followed by a historically regrettable deal. From 1986 on, when GE acquired RCA, the parent company of NBC, through much of the 1990s, NBC was a formidable part of the G.E. portfolio. Welch revelled in the popularity of such shows as Friends and Seinfeld and Thursday’s “Must See TV.” He loved hamming it up during gabfests on CNBC. He championed the deals to expand NBC’s cable business. But during the height of the financial crisis, potential trouble at GE Capital sent Jeff Immelt, Welch’s successor, panicking, and he went looking for a way to offload NBCUniversal, as the business was then known, for cash in a hurry, without an auction. (My definitive book about the rise and fall of GE, Power Failure, will be out in the fall.)

In December 2009, GE agreed to sell control of NBCU—51 percent—to Comcast. In February 2013, it agreed to sell the rest of its stake in the company to Comcast. The total purchase price was around $30 billion. NBCUniversal is now probably worth well north of $100 billion, out of Comcast’s $230 billion market value. Many on Wall Street consider Comcast’s deal for NBCUniversal to be the media steal of the century, and I am inclined to agree with them.

“Breaking the Buck”

The sale of NBCU to Comcast was borne out of the abject fear racing through the corridors of GE’s Fairfield, Connecticut headquarters that GE Capital, its massive financial services business, might have to file for bankruptcy protection as the financial markets were melting down in September 2008 following the Lehman Brothers bankruptcy. (Earlier in the year, Dick Fuld, Lehman Brothers’s C.E.O., had asked Jeff whether G.E. would consider buying Lehman; Jeff turned Fuld down flat.)

Jeff Immelt worried that GE Capital, which financed itself in the short-term commercial paper markets—to the tune of $90 billion at that moment—would no longer be able to get access to that capital in the wake of the Lehman bankruptcy. Like the big Wall Street investment banks that nearly all disappeared in 2008, GE Capital did not have access to a meaningful amount of consumer deposits in the United States to fund its aggressive lending businesses; instead, it relied on borrowing money in the bond markets and in the commercial paper markets, with most of its funding coming from commercial paper. Like so many others, GE Capital had made the mistake of borrowing short and lending long—of needing to repay its own borrowings quickly, but without having the capital necessarily to do so because it had lent those borrowings out for years, not months.

It’s entire business plan was predicated on being able to arbitrage GE’s AAA-credit rating, in order to borrow very cheaply and then to lend that borrowing out to companies with far less stellar credit and capturing the spread between its cost of borrowing and the price it charged for its lending. For decades this strategy, which Jack took to with gusto and greatly expanded, worked magnificently. Under Jeff’s leadership, GE Capital often provided as much as half of GE’s total earnings, many billions of dollars of profit a year. As Jack once told me before he died in March 2020, it was a lot easier for GE to make money from money than from building aircraft engines.

Once Lehman declared bankruptcy, there was a rupture in what had been for decades the smooth functioning of the commercial paper market. Immediately afterward, the Reserve Fund—a big buyer of commercial paper—“broke the buck,” which sent shockwaves through the short-term financing markets. Bear Stearns evaporated in a week’s time in March 2008 after big institutional investors, such as Fidelity and Federated, would no longer provide the investment bank with short-term, overnight financing secured by the financial assets on Bear’s balance sheet. The investors had lost confidence in the security that Bear was offering them and refused to provide the firm the money it needed, even overnight.

If a version of the same thing were to happen to GE, that could certainly have led to the bankruptcy of GE Capital—the papers were prepared just in case it was necessary, Jeff told me, and Rog Cohen, the Sullivan & Cromwell uber-attorney, confirmed—which would have likely meant the bankruptcy of GE, too, given the implicit guarantee that investors believed existed between the two entities when it came to repaying GE Capital’s billions of dollars in debt. What was previously inconceivable—that a AAA-rated company could file for bankruptcy, let alone a company named General Electric—was quickly becoming a possibility.

Hank Paulson, the Treasury Secretary, rightly worried about the implications for markets and the economy if GE, or GE Capital, filed for bankruptcy. He became increasingly concerned that people didn’t fully comprehend what GE “going down” would have meant. In the fall of 2008, he and Jeff had numerous conversations, some of which are documented in Paulson’s book about the financial crisis, On The Brink. “Just the sheer size of it,” he told me in an interview for my book, “and the symbolism. This was American capitalism. GE was America.” He said that when he visited with Xi Jinping, the president of China, and Xi wanted to show off his English, “It was ‘GE, Boeing, IBM.’”

Long story short, the aftermath of Lehman’s bankruptcy caused Jeff to have to raise for GE $3 billion of new, expensive preferred equity from Warren Buffett and to raise another $12 billion in equity from the public markets at a price lower than GE had been buying stock back from the market in the previous months—an unfortunate example of buying high and selling low. Weeks earlier, Jeff had told investors that GE did not need to raise new equity. But the world had changed, more rapidly and more excruciatingly than even the best corporate executives could have ever imagined. It was a failure of imagination as much as anything else. And it hurt Jeff’s credibility with investors.

“Burn Some Furniture”

Out of this post-Lehman conflagration emerged Jeff’s seminal decision, in October 2008, to begin exploring the sale of NBCUniversal. One weekend that month, while also considering whether or not GE Capital would have to file for bankruptcy, Jeff called Jimmy Lee, his friend and the most senior investment banker at JPMorganChase. “I caught him on a weekend,” Jeff told me, “and said ‘Hey, look I’m thinking I may need to burn some furniture here.’”

He asked Jimmy to put “a soft lob” out to Comcast about acquiring NBCUniversal to see if Brian Roberts were interested, more of a feeler than anything else. “I needed something that was sellable,” Jeff continued. “And I knew people coveted NBC, and so I kind of always felt like that was my parachute, right? If I needed $10-$15 billion,” which of course he did.

Around this time, one Comcast executive remembered being in the JPMorganChase offices with Jamie Dimon, the C.E.O., and Lee and Brian Roberts. Lee asked Roberts about Comcast’s strategic imperatives. Roberts indicated that he wanted Comcast to originate more of its own content. Lee responded that he was meeting with Jeff Immelt in a few days, and wondered if Roberts and his executive team might be interested in their own sit down with Immelt.

The Comcast executives said that, of course, they would like to meet with Jeff about buying NBC. Lee arranged the meeting. “This is what we’d like to do,” Jeff told the Comcast executives when they met at JPMorganChase. “I'm not sure [NBC] is core to us anymore, but it’s a valuable asset. I don’t really want to sell it at the trough of the market. We know where we are in the economic cycle. Would you buy a minority stake?” The Comcast executives said they weren’t interested in buying a minority stake. But they were interested in buying a 51 percent stake, with the idea of acquiring the whole company at a later date. The logic of the deal was twofold: GE would get an immediate infusion of capital, and if the asset performed well under Comcast control, they’d do well in a sale of the remaining 49 percent. Meanwhile, Comcast would get control of NBCU and could start working its magic. The discussions continued off and on for months. “There was all sorts of shit going on,” one of the participants said, referring to the broader oscillations in the financial markets.

By March 2009, though, Jeff’s predicament had metastasized further: the GE stock was spiraling down, investors were fleeing, and credit-rating agencies were suggesting that GE needed to raise even more equity. There was talk of GE losing its vaunted AAA-credit rating, which happened on March 12. Jeff called Jimmy Lee again the night before Jeff was scheduled to be interviewed by Charlie Rose at Jimmy Lee’s C.E.O. conference at JPMorganChase. Jeff had agreed to speak months earlier. He wanted to back out, given what was happening to GE’s stock. But he couldn’t; that would be even worse. Rose later said he wasn’t sure Jeff would show up. At the same time as Jeff was scheduled to be interviewed by Rose, Keith Sherin, GE’s C.F.O., was scheduled to go on CNBC to try to reassure investors that GE wasn’t going down the tubes.

During their call, Jeff asked Jimmy to get him in a room with Brian Roberts. Lee called Dimon. Together, they called Brian Roberts. Roberts, who lived in Philadelphia, agreed to meet Jeff the next morning at 7 a.m. before his scheduled appearance at Jimmy’s C.E.O. conference, at 8 a.m. They agreed to meet in a conference room on a different floor from where the C.E.O. conference would be held.

Meanwhile, Welch and Zaslav were already at the C.E.O. conference, sitting outside of where Jeff was scheduled to speak, watching Sherin on CNBC. By that time, Jack was not talking to Jeff anymore. He was worried about whether the world was going to end and whether GE—and all that he accomplished during his 20-year reign—was going to go down the tubes with it. “It’s the lowest point in GE history,” recalled one former GE executive.

In the meeting with Roberts, Dimon and Lee, Jeff told Roberts that he was ready to sell. Brian Roberts had been waiting nearly a decade for this moment. He had played golf with Jeff 10 times during that time and had lunch with him six times, with the hope that Jeff wouldn’t forget he wanted to buy NBCU. One Comcast executive told me it was a bit of “a funny meeting” where the assembled Comcast brass was trying to convince Jeff that “we were totally serious, and we would not screw around.” He said he thought Jeff was more worried about the “headline price” and “what the public reaction would be if he sold NBC than he was about doing the right thing.”

Jack, meanwhile, was so appalled by Jeff’s decision to sell NBCU that he refused to go into the meeting to listen to Jeff speak to Charlie Rose. He loved NBC and was furious that his successor had decided to sell it. “Talk about deer in the headlights,” said someone who heard Jeff’s interview with Rose. (The interview was private and JPMorganChase declined to make a transcript of it available to me.) “Jeff came out and said, ‘The world will never be the same. Everything has changed.’ His voice is quivering. His eyes are wide open. He's scared to fucking death. He's up there and literally the buzz was, ‘Oh my god, this guy is completely shaken.’ If you wanted to embody fear you would show a video of Jeff Immelt that morning…. [The sale of NBCU] was [done] out of fear. So we’ve got fear and beyond fear. It was jaw-shaking that morning. That’s how scared he was. That was the way he sold the company.”

“A Luxury We Could No Longer Afford”

Fear, perhaps, but that was understandable given the dire circumstances. Jeff had his own logic, too. At the time, NBCU was GE’s most expendable, most saleable asset—Jeff knew that Comcast wanted it badly—and the best way for GE to raise more capital without further rattling the financial markets. Wall Street analysts had been asking Jeff for years about whether NBCU fit in anymore, or ever, so getting rid of it would give them what they wanted. Besides, NBC was Jack’s thing, not Jeff’s. Jack was the one who delighted in going on CNBC and who studied the ratings and hung out with the TV stars. RCA had been Jack’s deal in 1986, not Jeff’s. And it had been one of the best acquisitions of all time; there was no doubt about that.

But, for Jeff and his team, it was expendable, rightly or wrongly. “Nobody wants to burn the furniture to heat the house,” Jeff recalled in his 2021 book, Hot Seat, returning to one of his favorite metaphors. “But in the dead of winter, even a favorite armchair begins to look like kindling.” Incredibly, he wrote, NBCU “had always been an outlier” within GE and had brought to mind the old Sesame Street song—“One of these things is not like the other…” He said the financial crisis “made NBCU a luxury we could no longer afford.”

This was one of the most momentous decisions in Jeff’s first eight years as C.E.O. Whether it was a wise one, or the correct one, remained to be seen. Even Jeff admitted, in retrospect, what many critics of the deal have said: that Comcast snookered GE. “I agree with them,” Jeff recalled in his book. “But back then, it was all about protecting the future—we needed more cash.”

Was he acting too impulsively, in the wake of a series of decisions that had embarrassed him and the company? Was the threat existential or did it just seem that way to him? At least some of Jeff’s top executives believed GE had run out of answers for NBCU. “What business did we have running NBC?” one of them told me. “For Welch, it was Must See TV. It was number one.”

But fortunes had changed by the early aughts. This person continued: “We were number four, for how many years in a row? We were terrible.” He then reeled off the myriad of problems that NBC, the network, faced: a slew of different directors of programming, none of whom seemed to be able to pick the winning content; stuck in last place in the ratings; losing money year after year. “Without Universal,” he continued, referring to Jeff’s decision a few years before to buy a bunch of Universal’s assets from Vivendi, the French conglomerate, “we couldn't have sold it for anything.” USA Network alone was making $1 billion in annual profit, covering up a lot of sins at NBC. “Thank God,” he said.

For me, there are two lessons to be learned from Jeff’s panicked sale of NBCU to Comcast as the embers of the financial crisis were still cooling. First, sorry to say, it was one of a number of poor decisions that Jeff made while he was running GE, and one of the myriad of reasons that GE as we know it will cease to exist when it is split into its various component parts over the next two years. And, second, what seems like a liability at one time in an economic cycle can turn into a huge asset in another. It behooves any C.E.O. to think long and hard before jettisoning a business for a quick buck in what seems like an existential crisis but probably is not.