General Electric Co. Announces Plans To Acquire RCA Corp.

NEW YORK, Dec. 13, 1986 -- PRNewswire -- General Electric Co. (NYSE: GE) has announced plans to acquire RCA Corp. (NYSE: RCA) for $6.3 billion.

The merger is scheduled for completion by late 1986. S&P's preliminary evaluation of the combination indicates that the senior debt rating will be either "AA+" or "AAA." GE's "A-1+" commercial paper rating is affirmed. These ratings also would apply to GECC, and RCA's "A-" senior debt rating would be raised to "AA+" or "AAA" to reflect the stronger credit quality of the combined entity.

A lower credit rating than the current "AAA" could result from certain negative aspects of the merger. For one, the performance of RCA's business has been inferior to that of GE's current portfolio. Performance measures for virtually all of RCA's segments have been subpar. Considering the full price GE is paying, it would take a dramatic turnaround to make the return on investment comparable to what GE now enjoys. Secondly, GE will incur around $5 billion in debt to finance the acquisition. These borrowings, combined with RCA's existing debt, increase debt leverage to the mid-30 percent range, a departure from the 16 percent average of the last several years. Potential asset sales could play a role in debt reduction.

On the other hand, GE has significant strengths that enable it to absorb both the higher operating and financial risks. It is highly diversified, with leading market positions in nearly all of its product lines. Its performance record is excellent, based on technological leadership and effective cost control. Its equity base of more than $13 billion provides a solid cushion against any reverses.

In determining this rating, S&P will evaluate GE's plans to integrate RCA's operations and to return to a more conservative capital structure.

/CONTACT: Katherine K. Oakley of S&P, 212-208-1623/