Business
exclusive

Jack Welch could have bought Apple for a paltry $2B: tell-all

Jack Welch — the former General Electric boss who bought and sold hundreds of companies and laid off thousands of workers in his relentless pursuit of growth — passed on buying Apple for a paltry $2 billion, a former top lieutenant reveals in a new corporate tell-all.

Michael Spindler, the Apple chief executive at the time, was practically begging GE to buy the then-struggling computer company in 1996, according to Bob Wright, the long-serving head of NBC­Universal, then owned by GE.

“The stock price was $20, and [Spindler] was explaining he couldn’t get the company moving fast enough and the analysts were on his case,” Wright told The Post in an interview on Tuesday. “He was sweating like mad and everybody said, ‘We can’t manage technology like that.’ We had a chance to buy it for $2 billion.”

Apple, which was revived with the return of late co-founder Steve Jobs, boasts a value of $607 billion as of Wednesday’s close. GE’s showing of $296 billion is less than half that.

While there is scant evidence that an old-school industrial conglomerate like GE could have turned around a faltering tech company like Apple, that doesn’t deter Wright from taking shots at Welch in his new 464-page memoir, “The Wright Stuff.”

The retired 72-year-old TV executive admits their friendship broke down over Welch’s prolonged succession process and his bitter, very public divorce, which was settled in 2003 and laid bare his retirement package — including life-long access to a corporate private jet — that is still widely cited as a prime example of corporate greed and excess.

Wright includes a passage written by a fellow board member at Rand Corporation, Ann McLaughlin Korologos, who writes: “I thought that was wrong … I don’t know how it passed the red-face test.”

The never-before-told nugget about Apple is just one of GE management’s missed opportunities and missteps that Wright chronicles in a chapter called “Dante’s Inferno: The Queen Mary 2 Became the Exxon Valdez.”

An excerpt from Bob Wright’s The Wright Stuff: From NBC to Autism Speaks (courtesy of Rosetta Books)

For more than a decade we morphed NBC into a $45 billion business. Over that same period from 1996 to 2009, General Electric created and lost $530 billion to catastrophes, industry blowups, and unfortunate timing in investments and core businesses. During that period, GE’s stock price soared from $7 a share to nearly $60 a share in Jack Welch’s best days before crashing back to $7 a share in 2009 and then settling into the mid-$20s. It was one of the greatest cycles of value creation and destruction of all time.

 

In the end, three almost simultaneous disasters—a housing and financial crisis in 2007–2008, an energy and insurance bust, and the 9/11 terrorist attacks—drove GE to lose nearly twice as much as the value wiped out by AOL Time Warner’s ill-fated merger, which was thought to be the priciest faux pas in US mergers and acquisitions.

 

Then, to make matters worse, GE forfeited more than $10 billion of the value we created when it undersold NBC Universal to Comcast in 2011. GE was already reeling from huge losses in reinsurance, power generation orders, airline travel, and mortgage-backed securities. So, fearing digital media would become just another imploding investment and needing cash to restore GE Capital, the company decided to make a quick exit. The timing was dreadful. Comcast paid $30.5 billion over 2 years—about $15 billion less than NBC Universal’s street value in 2006!

 

These complex dynamics were rarely considered in their entirety and easily missed by Wall Street and the press. But understanding what was going on at General Electric during NBC’s transformational decade (1996–2006) helps explain some of the menacing twists and turns we encountered. Looking back now, it seems very much like the agonizing Inferno voyage that thirteenth-century Italian poet Dante Alighieri graphically described in The Divine Comedy.

 

Only this was a financial hell of GE’s own making.

 

That’s not what you’d expect from a conservative conglomerate consumed by process and methodology. And yet GE played some heavy investment roulette, most of it through GE Capital financial services with the goal of making greater returns outside its more predictable core industrial assets.

 

GE Capital grew so large it quickly contributed half of GE’s earnings, some of which were used to fuel its investment engine. So when some of those investments crashed, they dragged down GE’s overall worth. Jack Welch was applauded for these bold bets—before some collapsed when he retired and turned into a nightmare for his successor, Jeff Immelt.

 

You could say Jeff Immelt was doomed from the start. His first official day as the new announced president CEO was September 11, 2001, even though he had been president for 9 months. GE’s jet engine business had been at an all-time high in orders when the 9/11 tragedies brought all commercial aviation to a grinding halt. Power generation and jet engine orders, and consumer air travel were way off for 2 years. That’s the kind of black swan that can’t be anticipated, but it just killed us. GE stock traded as low as $22 a share. There was no plan B.

 

But the airline losses weren’t the only problem. GE’s stock price hit a record high of $59.88 per share September 8, 2000, after public utilities were deregulated. When Enron created a supply and demand energy bubble, GE followed it down the rabbit hole, which turned out, instead, to be a sinkhole. Enron and its top executives were taken down in the 2001 scandal, while GE lost billions of dollars on canceled orders, despite the valiant efforts of John Rice, Bob Nardelli’s successor as head of power generation. The combined fallout from that scandal and the effects of 9/11 put too much pressure on GE’s financial services and exposed a huge weakness in GE’s reinsurance program. Anchored by Employers Reinsurance Corp. (ERC), that was the next business to self-destruct in a blaze of controversy and losses.

 

Immelt spent every day from 2002 to 2006 trying to get GE out of the insurance and reinsurance businesses, which turned out to be more volatile, capital intensive, and slow growing than anticipated. In 2005, GE finally spun off $2.8 billion of its insurance assets into the publicly traded Genworth Financial and made a separate $6.8 billion sale to Swiss Reinsurance Co. in 2006. GE, arguably, should never have been in the international reinsurance business.

 

GE barely had time to catch its breath before the US housing market deflated, vaporizing the value of its mortgage-backed securities. The timing could not have been worse. By 2008 and 2009, GE’s financial services arm was racking up $32 billion in losses.

 

We should have been more skeptical of the housing boom and of the Internet mortgage business GE Capital invested in. For instance, in 2004, GE bought California subprime lender WMC Mortgage Corp. for $500 million—and eventually lost more than twice that. GE became so enamored of the online mortgage industry in California and in Texas in 2007 that it failed to see there was some real sloppiness going on at companies it funded. It was borderline fraud. When we started looking deeper, we realized many of the people getting mortgage loans online were unemployed and unable to make their payments.

 

When the real estate market crashed, GE was holding $50 billion in paper profits that went up in smoke. We were too slow liquidating our commercial real estate positions while the federal government demanded that wholesale banks like GE Capital reduce their risk and holdings.

 

On top of all that, GE shot itself in the foot with the decades-long multibillion-dollar dredging of New York’s Hudson River to clean up 1.3 million pounds of polychlorinated biphenyls (PCBs) and other toxins that had been flowing from two GE plants for 3 decades, until banned in 1977. We thought adequate reserves were on the books years earlier. Not so.

 

When the dam finally burst, GE was confronted by too many major gushes that compromised its structural and financial integrity. NBC’s media investments were among the bright spots. We were betting on a cable and digital future, staying out of GE’s sights while we made it happen. Soon we had $30 billion in cable network value that dwarfed its broadcast TV properties.

 

Originally GE thought it was getting a stable subsidiary in NBC that would generate reliable cash flow to reinvest in GE Capital’s new ventures. And for a long time, that was true. But there were a lot of things going on in media involving new technology that were about to challenge the broadcast business. When GE paid $6 billion for RCA in 1986, NBC’s market value was about $2 billion. By the time cable giant Comcast bought it 25 years later, it was worth about $40 billion, with most of that rooted in cable television. That’s the awfulness of it. I can’t let the $30 billion Comcast paid for NBCU be the defining number for me. We were worth as much as $45 billion and generating $4 billion in pretax earnings just 2 years after the NBC and Universal merger closed in May 2004. That’s the defining number.

 

Here’s the bottom line: while GE’s fortunes fell, NBC’s fortunes rose—but we were reduced to a footnote on the conglomerate’s ledger as a core subsidiary buried under all of GE’s bad business news.

 

[Steve Burke, president Comcast Cable, then chairman CEO NBC Universal, 2009–present] The most striking thing about NBC the last 10 years under GE ownership was the huge amount of value that was created through strategic acquisitions. Virtually all of the assets acquired when Comcast bought NBC Universal in 2009 were added during that last decade. The value of what we really bought was created outside of the NBC TV networks and stations. In fact, it would be difficult even now to calculate the value of those original core businesses if NBC had not undergone that transformation. But it would be a very small fraction and we might not have been interested in purchasing NBC at all if that’s all that was there. The NBC we bought had 100 percent of its earnings come from the cable channels, which is remarkable considering that CNBC has only been around 25 years and MSNBC half that time. The big bang was the NBC Universal deal in 2004, not just because NBC gained control of a film studio and theme parks, but it brought the powerhouse cable channels USA and Sci-Fi. That was the real master stroke by Bob in the amount of value that was added and the way the deal was structured.

 

The ultimate irony was that GE’s freefall coincided with the strongest programming NBC ever had in news, sports, and entertainment, and we were able to double down on the financials. It was NBC’s turn to look brilliant after maneuvering through a minefield of poor ratings and press in the early 1990s. Today, NBC Universal is generating $4 billion-plus in free cash flow for Comcast, which is what our peak was years ago.

While the AOL-Time Warner merger is often derided as the worst corporate merger in history for destroying shareholder wealth, Wright argues that between 1996 and 2009, Welch and successor Jeff Immelt created and lost $530 billion in value.

Under Welch, GE also played “investment roulette” at its financial services unit, GE Capital, which contributed half of the company’s earnings, according to Wright.

“Jack Welch was applauded for these bold bets — before some collapsed when he retired and turned into a nightmare for his successor, Jeff Immelt,” Wright writes.

Wright also blames bad management at GE for the decision to sell the media division Wright had built — NBCUniversal — for a rock-bottom price to cable giant Comcast.

Wright added to the NBC broadcast business, acquiring the Universal Studios and cable assets to create a media colossus — only to see GE sell it off when it needed to shore up its finances.

“The timing was dreadful,” he writes, noting Comcast paid $30 billion — about $15 billion less than NBCUniversal’s street value in 2006. “We were reduced to a footnote under all of GE’s bad business news.”

A rep in Welch’s office said he wasn’t available to comment.