Maybe GE, like Apple, couldn’t find anything big to buy, so it’s paying back shareholders instead

February 13, 2013
February 13, 2013

It may be that GE, like Apple, couldn’t find a decent-sized company to buy. So it’s using part of its windfall from the $18 billion sale of its stake in NBC Universal and related assets to accelerate and expand its share buyback program, to a whopping total of $35 billion.

GE is one of the more active companies in the M&A world as both a buyer and seller, but though it made large acquisitions in 2011 totaling about $11 billion, most of its transactions in the past year have been valued at less than $500 million. Today, though, it announced that it was selling its 49% stake in NBC, in addition to the NBC floors in the 30 Rockefeller Center building in New York City, to cable operator Comcast. (Comcast already owned 51% of NBC, which it bought from GE in December 2009.) Of the $18 billion sale price, $13 billion comes in the form of cash.

But instead of using that cash for a large transaction, GE is instead rewarding shareholders, who thanked the company by sending GE shares up by about 3.7% to $23.41 in after hours trading.

“Going forward, we expect to continue our balanced capital allocation approach, investing organically in our industrial businesses, growing dividends in line with earnings, buying back stock, and focusing our industrial M&A on bolt-on acquisitions,” GE CEO Jeff Immelt said in a statement regarding the NBC deal. (Bolt-ons are smaller-size deals.)

The contrast with Apple’s policy on returning cash to shareholders is notable. Both companies have similar cash hoards: Apple’s is $137 billion, while GE at the end of 2012 held $125 billion on its balance sheet. Apple CEO Tim Cook recently said the tech giant looked at several large companies to possibly buy, but the deals didn’t pass muster. Instead, Apple has chosen to buy smaller companies and last year started returning $45 billion to investors over a period of three years in the form of dividends.

But it began this program after 17 years of not paying a regular dividend, and has since come under pressure from hedge fund manager David Einhorn’s Greenlight Capital to pay out even more. (The company said last week it was evaluating Greenlight’s proposal.) In Apple’s case, the inexorable climb of its share price until last autumn meant that shareholders could hardly complain if it was stingy with cash; with Greenlight, that is changing. In GE’s case, though the gift to investors didn’t come under duress.

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