A Reunion of Technological

By Charles P. Alexander.

With the dramatic announcement that General Electric intends to buy RCA, a tale of two corporate friends turned foes has come full circle. It was in 1919 that Franklin Roosevelt, then Assistant Secretary of the Navy, encouraged General Electric to help create the Radio Corp. of America to make sure that the U.S. was not left behind in the field of wireless communications. For many years GE owned the majority of RCA's stock, and the two companies worked together on the development of radios. But in 1932 Government trustbusters forced GE to spin off its RCA holdings, and the firms became fierce rivals.

Now these historic titans of technology are planning a reunion that will form the seventh-largest industrial company in the U.S., with annual revenues of $39 billion. The merger will combine two of the most famous names in corporate America, familiar to anyone who has ever bought a GE light bulb or an Elvis Presley hit on RCA records. By acquiring RCA, GE will strengthen its electronics and defense businesses and take over the NBC television and radio networks. Says GE Chairman John Welch, 50, who will head the combined companies: "We will have the technological capabilities, financial resources and global scope to be able to compete successfully with anyone, anywhere, in every market we serve."

For the past four years GE has been selling off unprofitable operations and accumulating cash that could be used for a major acquisition. Last spring, when CBS was facing an unwanted takeover bid from Ted Turner, GE offered to come to the rescue with a higher price if the company wanted a merger. After CBS fought off Turner, GE turned its attention to RCA, which also feared a hostile takeover bid. Perhaps to make itself less vulnerable, RCA had discussed a possible friendly merger with MCA, a movie and television conglomerate, but the talks broke off.

The first step in GE's courtship of RCA came about two months ago, Welch says, in an early-morning telephone call he made to Felix Rohatyn, a partner in the Lazard Freres investment banking firm and one of Wall Street's leading merger specialists (see following story). "Can you arrange for me to meet Brad?" asked Welch. The Brad in question was RCA Chairman Thornton Bradshaw, 68, who is a friend of Rohatyn's. In early November Rohatyn invited the two men to have a drink in his New York City apartment. They talked about the defense business and the tough competition from the Japanese in consumer electronics. In addition, Welch spoke in general terms about GE's interest in the broadcasting industry. "I discovered that we thought almost alike," Welch recalls, "and when you meet people with the same philosophical bent and you both see global markets and you can both agree, you move."

After carefully studying RCA's public financial records, GE two weeks ago made an offer. RCA held out for more money, and negotiations started. The two sides settled last Wednesday on $66.50 a share, for a total of $6.28 billion.

The acquisition of RCA is the boldest move ever for the company that was founded in New York City in 1878 by Thomas Edison under the name Edison Electric Light. After merging with other companies, it became known as General Electric in 1892. Starting with its light bulbs, GE has always explored the frontiers of technology. Its engineers and scientists discovered a way to make movies talk and did pioneering work in X-ray tubes. Over the years the company, now based in Fairfield, Conn., went into an enormous variety of businesses, ranging from refrigerators and dishwashers to locomotives and nuclear reactors. Along with its many manufacturing lines, GE moved into services like insurance, consumer credit and data processing.

When Welch, a chemical engineer who has spent 25 years at GE, became chairman in 1981, he inherited a patchwork giant. Strong profits in some divisions were being diluted by weak results in others. Since he took charge, Welch has sold 155 divisions, for $5 billion. Among them were GE's small- appliance operation, which made toasters and irons, and Utah International, a natural-resources subsidiary. Welch's strategy is to move away gradually from traditional manufacturing and focus on the growth industries of the future, including electronics and financial services.

Welch has also slimmed down GE's bloated work force, including the thick layers of bureaucracy at the upper levels. An informal man who works twelve- to 16-hour days and often pops in on subordinates unannounced, Welch reportedly earned the nickname Neutron Jack in a joking comparison to the neutron bomb: insiders said that after Welch toured a facility, the building was left standing but the people were gone. Since 1981 Welch has cut the number of GE employees 18%, making the company leaner and more profitable. Its earnings were up 13% last year, to $2.3 billion.

The only blot on Welch's record is a scandal in GE's defense business. Last March the Government charged that the company's space-systems division defrauded the Air Force of $800,000 on a project to refurbish Minuteman missiles. GE pleaded guilty, agreed to refund the money and was fined $1.04 million. The company insisted, however, that only a few employees and no top executives were involved in the crime.

After RCA split off from GE, it also had its triumphs and fiascos. In 1926 it set up NBC, the first national radio network, and at the 1939 New York City World's Fair, RCA President David Sarnoff displayed an invention called television, for which a company researcher had devised the picture tube. But during the late 1960s and '70s, RCA strayed far from its original focus on broadcasting by acquiring such diverse properties as Hertz car rental and C.I.T., a financial-services firm.

While spending billions of dollars for these sidelines, RCA executives failed to pursue the development of the videocassette recorder. As a result, the company surrendered production of the fastest-growing consumer-electronics item of the 1980s to the Japanese, who supply all the VCRs that RCA sells. The company made a videodisk player for watching movies that had been prerecorded on disks. But the system flopped in the marketplace because it could not record shows broadcast on TV, as a VCR can.

Meanwhile, RCA headquarters in Manhattan's Rockefeller Center was a hotbed of dissension. Starting in 1975, the company had four chairmen in six years. At the same time, RCA's acquisitions caused it to pile up more than $1.5 billion in debt, and interest payments got out of control. In 1981 profits plunged 83%, to $54 million.

That year the RCA board of directors called on Bradshaw, a veteran board member who was president of Atlantic Richfield, the oil firm, to take over as chairman. With a calm, collegial style, Bradshaw quieted the infighting and began putting the RCA empire back in order. He sold off Hertz and C.I.T. so that the company could concentrate on broadcasting, electronics and telecommunications. To revive the television network, which had been slipping badly in the ratings, Bradshaw brought in Grant Tinker, who had developed the Mary Tyler Moore Show and other CBS hits, to be head of NBC. With high-quality programs like Hill Street Blues, Miami Vice and the Cosby Show, Tinker took NBC from third place in the prime-time race into a virtual tie with CBS for the top spot. RCA's profits surged 41% last year, to $341 million.

Bradshaw considered the appointment of a successor to be his most important task. In a move that became ironic last week, he chose Robert Frederick, 59, who had been an executive vice president at GE. Frederick, a decisive, demanding administrator who can often be found running on a treadmill at a Manhattan health club by 7 a.m., became president of RCA in 1982 and chief executive officer this year. He had gone to RCA because he was convinced that he would rise no higher at GE under the Welch regime. Now he will be going back to work for his old boss. At a press conference last week, Frederick described his return to GE as a "homecoming," and to quiet speculation about bad feelings, he hugged Welch as they stood before the cameras. Bradshaw intends to step down after the merger and become a consultant for the firm.

In considering the merger, Welch and Bradshaw agreed that the future of their companies lay in high technology. They decided that by sharing scientific talent and engineering expertise, GE and RCA would have a better chance to achieve the breakthroughs needed to develop profitable products. The two companies may be able to help each other in many fields, including defense. GE builds aircraft engines and guidance systems for ICBMs, while RCA makes electronic equipment for the Navy's missile-launching cruisers. Together the companies could be a formidable competitor for the contracts being awarded by the Administration's Star Wars program.

Both GE and RCA are top sellers of television sets, radios and other consumer electronics items. Combined, they earn $3.1 billion in annual revenues from that business alone. GE also has experience in broadcasting that could help it in the job of managing NBC. As recently as 1979, GE owned eight radio stations, three TV stations and a cable-TV system. The company sold off most of those properties as part of its slim-down program, but remained interested in broadcasting.

Though the proposed merger must be approved by federal regulators, Welch doubts that antitrust considerations will be an obstacle. He points out that Japanese and Korean manufacturers have made consumer electronics an extremely competitive business and argues that a combined GE and RCA could help reduce the flow of imports. Says he: "Maybe two American manufacturers together can beat the competition."

RCA employees are naturally apprehensive about what GE may do to their company. Much of the headquarters staff is likely to be redundant after the merger. When RCA tried to get job guarantees for its management during the negotiations, Welch refused.

Another area of concern is that GE might interfere with NBC News. On that score Welch offered reassurance. Said he: "The traditional independence of NBC's news operations will be maintained." Nor is GE likely to second-guess Tinker's judgment about what TV shows Americans will be watching. Tinker welcomed the merger, suggesting that GE's financial resources would help NBC in the battle of the networks. "We had a supportive parent in RCA," he said, "and now we'll gain an even stronger parent." Of course, NBC is merely returning to the parent that helped nurture it more than half a century ago.

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With reporting by Thomas McCarroll/ New York