Boeing to Buy Hughes Satellite Division, People Say
Seattle, Jan. 11 (Bloomberg) -- Boeing Co. plans to buy Hughes Electronics Corp.'s satellite-manufacturing business, hastening its expansion into the industry by acquiring the world's biggest maker of commercial-communications satellites, people familiar with the matter said.
An announcement may come as soon as tomorrow, the people said. The El Segundo, California-based division employs 8,000 people and analysts forecast 1999 sales of almost $2.3 billion. A price for the transaction wasn't available.
Boeing, the biggest planemaker, has been trying for years to build up its space business to balance the reliance on jetliners, an economically sensitive industry that faces heavy price pressure. Hughes, majority owned by General Motors Corp., wants to spend less on satellites in order to invest more in its DirecTV unit, the largest U.S. satellite-television service.
Hughes's satellite-making division ``has faded in importance as the service side of the business has grown,' said Prudential Securities Inc. analyst Todd Ernst. ``It doesn't surprise us that Hughes management would then begin to think perhaps someone else could get more value out of it.'
Spokesmen for Boeing and Hughes declined comment.
Hughes shares have more than doubled in the past year, driven by growth in the DirecTV unit, which added a record 225,000 subscribers in December. Its stock fell 1 1/2 today to 102 9/16.
Seattle-based Boeing fell 13/16 to 42 7/8. The stock gained 27 percent last year, the best performance of the eight members of the Standard & Poor's Aerospace/Defense Index.
Dominant Position
Many of the satellites Boeing makes are for the military. The Hughes division, Hughes Space and Communications Co., would give Boeing a dominant position in the commercial business as well. Hughes Space and Communications has made about 40 percent of the satellites now in commercial operation worldwide.
Satellites are increasingly used to relay everything from telephone calls to faxes as consumers demand instant access to data. Industry forecasts call for communications via satellite to triple within the next few years, to $160 billion in annual sales.
The Hughes division could offer Boeing the expertise it needs to carry out a plan to sell satellite-based services such as Internet and mobile-phone access to people aboard planes. Boeing said in June it was looking for partners to help it tap the market for such services, estimated at several billion dollars a year.
Hughes Electronics has been trying to focus on services rather than building satellites. Analysts said it could use proceeds from the sale to invest in new interactive products for DirectTV and to build its broadband ``Spaceway' system for high- speed Internet connection. Hughes plans to spend $1.4 billion to design, build and launch the system in 2002.
A sale of the satellite-manufacturing business could allow Hughes ``to take capital from there and apply it to a potentially high-growth business,' Ernst said. ``The opportunity for high returns is better but the risk is higher.'
Boeing's top executives have said they were looking to make more acquisitions to bolster its space division, which has been responsible for some of the Seattle-based company's most notable successes over the past year.
In September, Boeing won an estimated $5 billion contract to build the next generation of U.S. military spy satellites over incumbent Lockheed Martin Corp. Boeing later won a $500 million contract to launch 40 satellites for SkyBridge LP, which is building a satellite system for high-speed Internet services.
Boeing's executives said the wins might not have been possible without a series of 1990s acquisitions. Boeing added launch vehicles like the Delta rocket with its $16.3 billion purchase of McDonnell Douglas Corp. in 1997 and won the biggest role on the international space station with its 1996 purchase of parts of Rockwell International Corp. |
