The winning bid for Hughes Aircraft is expected to be selected from among purchase offers by General Motors, Ford and Boeing by the close of next week, when investment bankers are likely to forward a recommendation to the Howard Hughes Medical Institute.
The medical institute, sole owner of Hughes Aircraft, has said it is seeking $4.5 billion to $6 billion in the sale, but Wall Street sources are skeptical about the upper end of that range.
One informed source close to the transaction said Thursday that the highest bid has an estimated value of no more than $5.5 billion.
Analysis of the bids has been made somewhat difficult because at least two of the three bids contain non-cash provisions, such as warrants, notes and possibly special classes of stock, according to a second source.
Estimated $200 Million Net
Larry Lytton, aerospace analyst at Drexel Burnham Lambert, said Hughes is believed to be earning about $200 million annually. With a price-to-earnings multiple of 20, which is high even for the defense electronics industry, Hughes would be worth only $4 billion.
It is believed that Boeing and Ford, the two bidders with less financial strength than GM, are proposing a complex combination of financial instruments.
It could not be determined whether GM's bid was for all cash or a combination of securities. GM has an estimated $8 billion in cash and marketable securities, far more than needed to buy Hughes in an all-cash transaction.
But the Detroit auto maker chose to issue a special class of stock last year when it acquired Electronic Data Systems Corp. for $2.5 billion. The so-called Class E stock was intended to keep EDS separate from GM to preserve its entrepreneurial culture. Wall Street analysts believe that GM may use the same strategy in a Hughes purchase.
Donald S. Fredrickson, president of the Hughes medical institute, declined any comment on the bids. He said that Morgan Stanley, the investment banker representing the institute, is examining the bids and may make a recommendation next week. A special trustees meeting would be convened shortly afterward.