YOU ARE HERE: LAT HomeCollections

Company Town

GM Revving Up the Bidding War for Hughes Sale

Deal: Parent company is being pressured by stockholders to unload the electronics firm. News Corp. covets latter's DirecTV.


General Motors is finally putting its vague talk about "maximizing" the value of Hughes Electronics Corp. into action.

GM has given Hughes the go-ahead to hold discussions with potential buyers to sell all or part of the company, whose most valuable asset is the DirecTV satellite service.

The El Segundo-based company, a publicly traded subsidiary of GM, has hired Credit Suisse First Boston and Goldman, Sachs & Co. as advisors, according to industry executives who have been contacted by the investment bankers in the last week. The companies, some of which will be talking to Hughes over the next several weeks, include an array of telecommunications, entertainment and software firms, including News Corp., Microsoft, Liberty Media Corp., Vivendi, Verizon, Walt Disney Co., Viacom and NBC.

The developments come as GM faces increasing pressure from investors to sell off Hughes and unlock the value of the nation's largest satellite television service.

GM Vice Chairman Harry Pearce has been vowing to accelerate such a plan since May. Now corporate raider Carl Icahn's entrance reinforces the urgency. GM disclosed last month that Icahn, who invests in underperforming companies as an activist shareholder, plans to buy up to 15% of GM's stock.

Though News Corp. is seen as the front-runner and the most logical partner, analysts say GM is trying to create a bidding war to squeeze the maximum value from Hughes, which has a market value of about $44 billion. Some analysts have calculated that GM could get a 25% premium for Hughes, meaning $17 billion, for its 30% equity stake. While it is a minority shareholder, GM owns 100% of Hughes' voting stock.

DirecTV is the missing link in News Corp.'s upcoming initial public offering of its worldwide satellite operations under the Sky Global Networks banner. Sky Global management told underwriters Wednesday that the company would be open to doing a deal to bring either DirecTV or the other leading U.S. satellite service, EchoStar, into the offering.

"Sky Global has a couple good assets and a couple measly ones and would benefit from any deal with Hughes," said Tom Eagan, an analyst at PaineWebber.

So eager is News Corp. Chairman Rupert Murdoch for DirecTV that he has contemplated taking a run at GM, with John Malone's Liberty Media as his partner. News Corp. was one of several telecom giants to crunch the numbers last year, envisioning buying the auto maker as a way of acquiring DirecTV.

Because of GM's poor financial performance and slumping stock price, a buyer would be able to pick off GM, shed the auto assets and get DirecTV virtually for free. That is because GM's market value of about $39 billion is significantly less than Hughes'.

As a result of this imbalance, GM shareholders have been an unhappy group, pressuring the company to sell off Hughes. As a stopgap, GM this spring allowed its shareholders to exchange their shares for Hughes stock in an offering that was wildly oversubscribed and that highlighted GM shareholders' disaffections.

GM has been unwilling to give up control because Hughes' value on the books helps preserve GM's pristine credit rating, which it needs for its consumer credit business. But sources say the company may now be ready to trade control of Hughes for a huge cash premium and shares in the acquiring company.

Still, Icahn's plan was a wake-up call to the conservative GM board that a long slump in the auto maker's performance and stock price would no longer be tolerated. The board had two meetings in four days to cover the issue.

But any sale could be tricky. The Goldman analysts said GM insists on a tax-free transaction, meaning that the auto maker probably will take stock from the acquirer. Sources said GM's board believes News Corp. stock is too risky. It would prefer General Electric Co. stock (NBC's parent company), an earnings-driven stock like its own.

The trouble is, few of the companies that are most likely to be top bidders have that type of currency.

What is more, GM is said to want $9 billion of the value in cash. News Corp. does not have that type of capital, and sources say that is why it is considering bringing Microsoft or Liberty Media into the deal to shore up its cash position.

After a 7-million block trade Wednesday in EchoStar, speculation swirled that News Corp. had dumped shares to stockpile a cash war chest for a Hughes bid. But the seller could not be confirmed.

DirecTV is the leading satellite television provider in the United States. It accounts for roughly 80% of Hughes' market value.

Los Angeles Times Articles