As General Electric Co. (GE) struggles in the throes of the U.S. financial crisis, the debate on Wall Street over whether it should cut loose its media business is heating up.

Now that GE is moving to shore up its capital base as its finance unit shudders under a barrage of asset write-downs, some believe the time to sell the media conglomerate has arrived.

"NBC is not a strategic asset for GE, and they need to make moves to restructure their portfolio," said Jack De Gan, chief investment officer with Harbor Advisory, which has owned a GE stake since 1996. "Anything they can do right now to bolster their credit rating and reduce their reliance on short-term financing is something they have to consider, so I think we'll see them revisit this."

On Thursday, GE lowered its 2008 earnings outlook, citing "unprecedented weakness and volatility in the financial-services markets," and it said it will suspend its stock-repurchasing program and possibly not increase its dividend for the first time since the 1970s.

On a conference call following the announcement, Immelt noted NBC's blowout ratings performance with its coverage of the Beijing Summer Olympics, and he said the media unit is "very well-positioned in the cycle." He also said GE is looking to shift its portfolio to 60% industrials and 40% financials from the current split of roughly 55% to 45%. Since the company considers NBC an industrial asset, that suggests it would look to sell financial assets before unloading the media giant.

Ben Elias, analyst with Sterne, Agee & Leach, said GE should sell NBC, but he thinks it will have to sell more financial businesses first. With the U.S. financial industry crumbling, however, such a move could be hard to execute. GE is trying to sell its private-label credit-card unit and its appliance business, so far without success.

NBC has improved its operating performance in recent years, but De Gan said that only makes it a better candidate for a sale.

"A sale of the media business now while it has better margins and earnings momentum in a presidential election and Olympics year makes sense," he said. " Then, they could deploy that cash into another industrial business, where growth is slowing due to the economic situation and valuations are depressed."

In 2006, NBC was GE's only business unit that posted a decline in operating profit and it remained a laggard last year with a 6.4% increase compared with double-digit gains at most of its other divisions. This year, it was one of the company's top performers with a mere 3% increase in the first quarter and a 1% increase in the second. Meanwhile, investors have high expectations for its third-quarter performance based on its network ratings from the Olympics and the strong political season for its cable networks.

"NBC has had a good year, so maybe they'd get a better price for it now, but that's questionable in this economy," said James Ragan, analyst with Crowell, Weedon & Co.

Valuations for other traditional media conglomerates aren't exactly soaring as the industry struggles to adjust to the rise of digital media. Shares of Walt Disney Co. (DIS) are down 8.4% for the last year, while Time Warner Inc. (TWX) is down 26% and CBS Corp. (CBS) is down 50%.

Further complicating matters is the question of who would buy the company at a time when the credit markets have ground to a halt. Time Warner is said to be interested in taking over GE's 80% stake in NBC, but Time Warner is itself exploring options for its AOL unit and its frustrated shareholder base may be unwilling to support a large acquisition.

Vivendi SA (12777.FR), which owns 20% of NBC, could increase its stake in the company, but its chief executive, Jean-Bernard Levi, recently told the Financial Times that Immelt has told him "several times" in private and public that he has no plans to sell.

"Private equity could step in if NBC was for sale, even though they wouldn't be able to use anywhere near as much debt on a deal as they used to in this environment," said Richard Dorfman, managing director with Richard Alan Inc., a financial advisory and investment firm focused on the media industry. "NBC still has cachet and serious value, and some buyout firm sitting on billions in cash that it raised before this credit crisis might love to put some money to work in an asset like that at a time like this."

Morningstar analyst Daniel Holland said GE made the right decision in not unloading NBC, and he thinks the company should continue to hang onto it.

"The business is still generating positive cash flow and solid returns on invested capital, and it demonstrated its value with the Olympics in China by helping GE make further in-roads into that market," said Holland. "Getting rid of a cash-generating asset doesn't make a lot of sense when you're trying to keep capital inside the business. You'd be selling at the bottom of the market with asset values depressed."

-By Nat Worden, Dow Jones Newswires; 201-938-5216; nat.worden@dowjones.com

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