GM board reviewing Hughes spin-off -- analysts
By Michael Ellis
DETROIT, Jan 25 (Reuters) - General Motors Corp.'s
board of directors, in what would be another step to boost
shareholder value, is considering a distribution of shares in
its highly profitable Hughes Electronics Corp.
telecommunications company, analysts said.
GM's 74 percent share of El Segundo, Calif.-based Hughes,
which analysts value at more than $13 billion, is unreflected
in the automaker's share price. GM could tap the full worth of
Hughes and reward shareholders with a distribution or a
spinoff, they said.
"The indications I've gotten is, yes, it is being
reviewed," said David Garrity, principal of GVA Research in New
York. "I would say over the next 18 months that some
restructuring of Hughes occurs," in order to enhance
shareholder value, he added.
Another analyst, who declined to be named, said he also
understood from company insiders that the board was again
studying its stake in Hughes, whose satellite,
telecommunications equipment and DirecTV broadcast service
contributed $119 million in profits to GM in the fourth
quarter.
"My understanding is that sometime in the last few weeks, a
decision was made to review it again," the analyst said.
The initiative is in keeping with GM's record over the past
several years of consolidating its automotive operations and
selling or spinning off non-core businesses in order to enrich
shareholders.
GM spokesman Jim Finn said that top GM executives agree
that Hughes is undervalued by Wall Street, but he declined to
comment on the board's activities. He added the automaker needs
to keep Hughes to become a leader in the emerging business of
in-vehicle communications such as navigational and
entertainment systems.
"Retaining GM Hughes is in the best interests of GM and its
shareholders," Finn said.
However, analysts said that GM could continue to work with
Hughes on future electronic applications for cars and trucks as
independent partners. Hughes could also market those products
to other automakers.
A Hughes spinoff would add about $17 to the value of GM's
shares, analyst David Bradley of J.P. Morgan Securities said.
"The single biggest windfall for GM shareholders waiting to
happen is Hughes," Bradley said. "I think the probability of it
happening in the next several years is very high."
GM acquired Hughes in 1985 for $5 billion. Former Chairman
Roger Smith bought the company in part to transfer
sophisticated defense electronics technology to everyday
automobiles.
In a massive move called "Project Triple Play", GM
restructured Hughes in 1997 by selling the unit's defense
electronics businesses to Raytheon Co. , merging
Hughes' Delco Electronics business with GM's Delphi Automotive
unit, and injecting capital into Hughes' remaining businesses.
In the process, Hughes pared its businesses to focus on
communications. Last Friday, Hughes bought the satellite
operations of rival PRIMESTAR, Inc., for about $1.82 billion.
GM shareholders were given a $2.4 billion stake in Raytheon
and additional benefits under that deal. As part of the
complicated transaction, GM recapitalized its Class H shares,
which represents a 25.6 percent tracking-stock interest in the
earnings of Hughes.
In another boost to shareholders, GM said last week it
would resume its $9 billion share buyback program, which has
resulted in the repurchase of more than $6.3 billion of its own
stock since January, 1997.
GM is preparing to spin off in a public stock offering 17.7
percent of its stake this quarter in parts company Delphi
Automotive, and distribute the remaining 82.3 percent to
shareholders later this year.
In a filing last week with the U.S. Securities and Exchange
Commission, GM and Delphi disclosed the 1998 bonuses paid to
top officers would be cut because of lower Delphi earnings.
Delphi officials are scheduled to present the IPO to potential
investors this week in what is known as a "road show."
((Detroit newsroom, 313-870-0200))
|
