The electronics company that Howard Hughes built has operated for three decades in relative obscurity but its new owners at General Motors have been struggling in recent months to sharpen its profile.
Hughes Aircraft will host today and Friday the first large meeting for securities analysts it has ever held--part of an effort by GM to stimulate interest in the aerospace giant.
A Hughes spokesman acknowledged half a dozen years ago that when any outsider would call the company, "We wouldn't give him the time of day." That shroud over Hughes has long since been lifted, but the company remains an enigma to Wall Street.
Share prices of General Motors Hughes Electronics Corp., the GM subsidiary that holds Hughes Aircraft, are lagging below what company officials believe is their "intrinsic value." And, because of a guarantee that GM gave to Hughes' former owner, GM could be liable for huge financial penalties if the price does not rise in the next two years.
In addition to hosting analysts, Hughes is stepping up other efforts to be noticed by the investment community. Recent Hughes press releases, for example, now emphasize that Hughes is a GM subsidiary. "We have had limited discussions with the investment community. The majority don't understand us well and we are taking steps to improve that," said John Arle, chief financial officer of GM Hughes Electronics, the Detroit-based holding company that owns Hughes Aircraft and Delco Electronics.
Wolfgang Demisch, aerospace analyst at the First Boston investment firm, observed: "At best, it is marginally understood. But it is potentially very exciting."
The two-day meeting this week will feature displays of Hughes' sophisticated technology inside the atrium at the firm's new granite headquarters overlooking the Pacific in Los Angeles' Westchester district.
The carefully planned affair is expected to draw 50 securities analysts, who will be flown to various Hughes sites aboard a fleet of helicopters. "We hope that is going to be the first step in being pro-active and more responsive to their needs," Arle said. Hughes decided to exclude reporters from the meeting, Arle noted.
Some Hughes insiders have said that recent Hughes Aircraft press releases have been screened by GM Chairman Roger B. Smith before being released to the news media. GM officials acknowledge that they are taking a closer look the content of those news releases.
"We have made a conscious decision to identify Hughes Aircraft and Delco with the parent GM Hughes," said Bruce McCristal, director of public relations for GM Hughes Electronics in Detroit. "We are all part of that ball club. Identifying with the parent company is important to investors' understanding . . . There has been a relatively low profile to both of the components, Hughes and Delco."
Higher awareness of GMH stock by large investors could lead to an increase in the price of shares, which would be welcomed by General Motors.
One GM official said he didn't believe the stock price had reached its "intrinsic value."
As a result, GM has been repurchasing GMH shares.
"I wouldn't say we are buying back the shares to raise the price," Arle said. "We are buying it because we feel it is a good investment."
In the long-range, GM has a powerful incentive to see that the stock price increases.
GM has issued 17 million shares of GMH stock, about 40% of which are owned by employees. In addition, 50 million unregistered shares are held by the Howard Hughes Medical Institute, the former owner of Hughes Aircraft.
General Motors acquired Hughes Aircraft in 1985 from the medical institute for $2.7 billion in cash and an estimated $2.5 billion of GMH stock. Under provisions of the sale, the medical institute received a guarantee by GM that GMH shares would fetch at least $60 a share at the end of 1989.
Thus, GM's liability for the guarantee would amount to $50 million for each dollar under $60 at which GMH stock is trading. GMH shares closed Wednesday at $46.375 in New York Stock Exchange trading.
One concern some investors have expressed with GMH stock is whether the very thin trading in GMH shares has distorted the value of the stock. The non-employee investors hold less than 12% of GMH shares, counting the medical institute's shares, which have never been traded.
"We had an internal discussion about how important the liquidity of the stock is in determining valuation," Arle said. GM had the Salomon Bros. and First Boston investment firms study the trading volume of GMH, Arle said. They concluded that the trading volume has not distorted the stock's price.
Nonetheless, some financial observers have questioned the valuation of GMH shares. The stock has a total market value of about $9.2 billion, but it is not a common stock. It is a so-called hybrid stock, owners of which have no equity in the company and are entitled only to dividends amounting to 25% of GM Hughes profits.
One analysis suggested that if the stock's value were to be based on 100% of GM Hughes profits, rather than the 25%, the market value would be four times the $9.2 billion. If so, then GM Hughes would be worth more than all of GM, which has a market value of roughly $18.5 billion.
GM officials, however, said that analysis is without merit.
Demisch, meanwhile, agrees that GMH shares should be worth more, in part because of the tremendous potential of Delco Electronics. The electronic content of automobiles has increased in the last decade from $10 per car to $500 and is expected to hit $1,500 by the mid-1990s.
"That business should be worth a premium," Demisch said.