Wall Street Journal January 8, 1997
GM or Hughes Could Get Cash From Sale of Defense Business


The complex sale of Hughes Electronics Corp.'s defense business for stock could nevertheless result in $3 billion to $5 billion in cash proceeds for the remaining Hughes communications company, or possibly its parent, General Motors Corp.

Bids were due for the Hughes defense division on Monday at 5 p.m. EST. Earlier this week Raytheon Co. and Northrop Grumman Corp., as expected, formally made their proposals to acquire the business, which had 1995 revenue of about $6 billion.

Though GM and Hughes declined to comment, most observers believe the transaction could be valued at about $9 billion -- or possibly more. That is likely to consist of $5 billion in stock and $3 billion to $5 billion from the proceeds of new debt issued by Hughes and transferred to the new company as part of the sale.

With defense consolidation coming to a swift conclusion, the winner of the Hughes business could well solidify its position as a survivor in the industry.

Steps to Decision

The next step is a review by GM's management and then the board's capital stock committee, say people familiar with the situation. Ultimately, the full board will take up the matter, most likely next week. People close to GM's board doubt that the directors will wait for their next scheduled meeting on Jan. 27 to come to a decision.

GM and its advisers have designed an unusual structure for severing the defense business in an effort to create a tax-free deal. A traditional sale for cash or stock could leave GM with a major tax bite. Under Internal Revenue Service rules, a sale or exchange triggers capital gains.

Indeed, this is one of the most complicated transactions to hit Wall Street in a long time, given that Hughes is 24% publicly traded with a hybrid "letter stock." While GM technically owns all of the assets of Hughes, the automobile company's share of the letter stock-representing the earnings of Hughes -- is around 76%. In addition, the entire company won't be sold; its Delco Electronics division is likely to be folded back into GM, and the existing telecommunications arm of Hughes will be left intact.