PRESS RELEASE
GM Transactions Designed to Unlock Stockholder Value and Address Strategic Challenges
17 January 1997
GM Transactions Designed to Unlock Stockholder Value
and Address Strategic Challenges
NEW YORK, Jan. 16 -- General Motors unveiled a
series of related transactions designed to address strategic challenges and
unlock shareholder value in its defense electronics, automotive electronics,
and telecommunications and space business sectors. GM Chairman, Chief
Executive Officer and President John F. Smith, Jr. announced the following
series of transactions:
-- The tax-free spin-off of 100 percent of Hughes Aircraft Company to
holders of GM's $1-2/3 par value and Class H common stocks, in a distribution
ratio to be determined at a later date. Hughes Aircraft is the defense
electronics subsidiary of GM's Hughes Electronics Corp. . Hughes
Aircraft will incur approximately $3.7 to $4.7 billion of new debt immediately
before the spin-off; the proceeds will be used principally to fund the
telecommunications and space business of Hughes Electronics, which will remain
a part of GM.
-- The tax-free merger of Hughes Aircraft Company with Raytheon Company
immediately after the spin-off. The spin-off and merger have an
indicated total value of $9.5 billion to GM and its common stockholders at
current stock prices. That value consists of a combination of approximately
$4.7 billion of total debt obligations of Hughes Aircraft at the time of the
merger, and $4.8 billion of indicated value of Hughes Aircraft stock to be
distributed to common stockholders (after giving effect to the merger and
based on yesterday's closing price of Raytheon common stock on the New York
Stock Exchange of $47.00 per share). The common stock of Hughes Aircraft to
be distributed in the spin-off to GM common stockholders would represent
approximately 30 percent of the stock of the combined company.
-- The transfer of Delco Electronics from Hughes Electronics to GM's
Delphi Automotive Systems. At the same time, the 25 percent derivative
interest in the earnings of Delco Electronics currently held by Class H common
stockholders will be allocated to holders of GM $1-2/3 common stock in
connection with the recapitalization of GM Class H common stock (as described
below).
-- The recapitalization of GM's Class H common stock into a tracking stock
linked solely to the telecommunications and space business of Hughes
Electronics. Currently, GM's Class H common stock tracks the performance of
all three Hughes Electronics businesses, namely defense electronics,
automotive electronics, and telecommunications.
"These actions are further proof that General Motors is serious about
returning value to General Motors stockholders," said Smith. "We're also
strategically realigning the company to strengthen our leadership position in
a couple of key areas -- specifically, telecommunications and space, and
automotive components.
"Stockholders will receive direct and immediate value from the spin-off
and merger of Hughes' defense operations," he continued. "In addition, Hughes
Electronics will be well positioned to take advantage of emerging
opportunities in the telecommunications business, with additional capital
available to implement its growth plans. The new Class H common stock will
give investors a more focused investment in this business.
"Finally, we will create greater stockholder value in GM's automotive
components business by integrating Delco Electronics' high-tech electronics
capability with Delphi's proven automotive components and systems expertise,"
Smith explained. "The integration of these competencies will allow us to
create a new category of electronically enhanced vehicle systems with improved
functionality, lower cost and higher quality, and we will be able to
significantly accelerate the newly combined unit's ability to compete more
aggressively in high-growth markets worldwide."
Smith added that combining these units will facilitate the integration of
Delco with certain parts of Delphi into a distinct business unit, giving GM
the flexibility to consider some form of future partial public ownership of
the resulting entity. GM is evaluating its strategic alternatives in this
regard.
SPIN-OFF/MERGER OF HUGHES AIRCRAFT COMPANY
The spin-off of Hughes Aircraft paves the way for its immediate merger
with Raytheon, pursuant to definitive agreements signed today. The combined
company will be renamed Raytheon Company, but is referred to here as
Raytheon/Hughes Aircraft for clarity. Following the merger, the Hughes
Aircraft Company name will be the property of Hughes Electronics.
GM and Hughes Electronics believe that the combination of these two
companies will create a strong competitor in an industry where significant
consolidation is occurring. This industry consolidation is redefining the
size and scope of sustainable and competitive defense operations. "GM had to
respond to the rapidly changing landscape in the defense industry," said
Smith. "The spin-off of Hughes Aircraft and its merger with Raytheon optimize
the value that all holders of GM common stock can realize from this valuable
asset."
The spin-off and merger have an indicated total value of $9.5 billion to
GM and its common stockholders at current stock prices. That value consists
of a combination of approximately $4.7 billion of total debt obligations of
Hughes Aircraft at the time of the merger, and $4.8 billion of indicated value
of Hughes Aircraft stock to be distributed to GM common stockholders (after
giving effect to the merger and based on yesterday's closing price of Raytheon
common stock on the New York Stock Exchange of $47.00 per share).
In connection with the spin-off and merger, two classes of Raytheon/Hughes
Aircraft common stock will be created: Class A common stock, approximately
103 million shares of which will be held by GM $1-2/3 and Class H stockholders
after the spin-off, and Class B common stock which will be exchanged for
Raytheon common stock on a one-for-one share basis in the merger.
The merger terms provide that Hughes Aircraft's total debt will be
adjusted to reflect variations in the average market price of Raytheon stock,
subject to specified limits, so that the two components of value will total
$9.5 billion so long as such market price is in a range of between $44.42 and
$54.29 per share. Based on the mid-point of that range, the indicated value
of the Hughes Aircraft stock to be distributed to GM stockholders would be
$5.1 billion, and the corresponding amount of Hughes Aircraft's total debt
would be $4.4 billion. In the election of directors to the Raytheon/Hughes
Aircraft board, Class A common stock will have an 80.1 percent voting interest
and Class B common stock will have a 19.9 percent voting interest. Each class
will vote separately as to all other matters. Except as to voting rights, the
Class A and Class B stock will have identical rights.
The voting difference between the classes reflects a transaction structure
that GM believes will allow the spin-off and merger to be tax-free to GM and
its stockholders. GM will seek rulings from the U.S. Internal Revenue Service
regarding the tax-free nature of the spin-off. The merger transaction is also
intended to be tax-free to both GM and Raytheon and their stockholders.
Currently, holders of GM Class H have approximately a 25 percent
derivative interest in the earnings of Hughes Electronics; holders of GM
$1-2/3 common stock have an approximately 75 percent derivative interest. In
the spin-off, holders of GM $1-2/3 and GM Class H common stocks would
collectively receive direct ownership of 100 percent of the Class A common
stock.
Holders of GM Class H common stock would receive a distribution of Class A
common stock having a value commensurate with their current 25 percent
derivative interest in the earnings of Hughes Aircraft, plus an additional
amount of this stock to reflect, among other things, the elimination of their
25 percent derivative interest in the earnings of Delco Electronics.
Similarly, the amount of Class A common stock to be distributed to GM's
$1-2/3 common stockholders would be less than their current 75 percent
interest in order to reflect the net effect of their increased interest in the
earnings of Delco Electronics and other elements of the transactions.
The allocation of Hughes Aircraft common stock between the holders of GM's
$1-2/3 and Class H common stocks in the spin-off (the "distribution ratio")
will be determined by the GM Board shortly before soliciting approval of the
transactions from GM $1-2/3 and Class H common stockholders. GM expects to
solicit stockholder approval in mid-1997, after certain other conditions are
satisfied.
The terms of the entire series of transactions were reviewed by the
Capital Stock Committee of the GM Board of Directors, which recommended the
transactions to the Board. The GM Board has reviewed and approved the
transactions, subject to the determination of a distribution ratio.
The spin-off of Hughes Aircraft will be recorded by GM for accounting
purposes at fair value and will result in a one-time, nonrecurring gain. The
amount of this gain depends on several variables, but is expected to be
between $3.9 billion and $4.5 billion. As a result of these transactions,
there would be a reduction in GM's stockholders' equity of between $0.6
billion to $1.6 billion.
DELCO ELECTRONICS AND DELPHI AUTOMOTIVE SYSTEMS
The integration of Delphi Automotive Systems and Delco Electronics would
create an industry-leading supplier with an unparalleled portfolio of
electronically enhanced vehicle systems. The value of combining high-tech
electronics capability with proven components and systems expertise is
evidenced by current Delphi products using Delco Electronics controller and
electronics architecture.
For example, Traxxar(TM), a vehicle stability enhancement system, uses the
power of high-tech electronics to extend the functionality of Delphi's vehicle
systems, helping the driver retain control of the vehicle in the most
challenging situations. This improved functionality is realized because
electronic controls of formerly independent steering, braking and suspension
systems are fully integrated into a single system that acts and reacts based
on driver input and road conditions.
The design of this and other fully integrated vehicle systems that will
provide improved quality can be realized more efficiently by combining the
competencies of Delphi and Delco Electronics. In addition, the cost structure
of the combined units would be significantly improved by reducing duplication
of resources. The combined unit would also be able to provide improved
customer service by sharing commercial accounts, customer contacts, and a
global customer support network.
The performance of Delco Electronics, as part of Delphi, would be linked
directly to the GM $1-2/3 stock rather than GM Class H common stock.
Accordingly, holders of GM $1-2/3 common stock would increase their dividend
interest in the earnings of Delco from 75 percent to 100 percent. Holders of
GM Class H common stock would no longer have a dividend interest in the
earnings of Delco Electronics.
The newly combined Delphi/Delco Electronics intends to realign its
product, technical and manufacturing operations to address strategic
objectives for growth and competitiveness.
HUGHES ELECTRONICS
GM will continue to own 100 percent of Hughes Electronics Corp., which
would hold and operate its existing telecommunications and space business.
"By participating in the rapidly growing telecommunications business
through our ownership of Hughes Electronics, GM will retain the long-term
financial benefits associated with this rapidly growing business segment,"
said Smith. "Hughes Electronics will be positioned to take advantage of
growth opportunities in the telecommunications and space marketplace with the
funding that would be provided to it in the transactions." GM's Class H
common stock would be recapitalized to reflect the changes in the businesses
which are tracked by that stock. The new GM Class H common stock would
represent a 25 percent tracking stock interest in the earnings of Hughes
Electronics' telecommunications and space business, and would not track the
earnings of either the defense electronics or automotive electronics
businesses. The terms of the new Class H stock, including the applicable
dividend policy, will be determined and announced before the transactions are
submitted to the GM common stockholders for their approval. Holders of GM $1-
2/3 common stock would retain a 75 percent derivative interest in the earnings
of Hughes Electronics.
"These actions provide Hughes Electronics with the opportunity to focus
its management and financial resources on the business of telecommunications,"
said C. Michael Armstrong, chairman and chief executive officer of Hughes
Electronics. "There are excellent growth and investment opportunities for
Hughes Electronics as a telecommunications company, and the new Class H stock
will provide a more focused investment in this business."
Hughes Electronics currently has a worldwide workforce of about 85,000
employees. Preliminary consolidated revenues for 1996 for all of Hughes
Electronics current businesses are $15.9 billion, which includes $6.3 billion
for the Aerospace and Defense Systems segment; $5.4 billion for the Automotive
Electronics segment; and $100 million for corporate and other. Revenues in
the Telecommunications and Space segment grew more than 30 percent in 1996 to
$4.1 billion.
After the proposed transactions, Hughes Electronics will have about 15,000
employees, primarily in the telecommunications and space businesses, which
include its global DIRECTV(R) business, Hughes Space and Communications, Inc.,
Hughes Network Systems, Inc., and Hughes Communications, Inc. (which has
agreed to acquire 71.5 percent of PanAmSat Corp.). Hughes Electronics will
also retain its in-flight entertainment systems business, Hughes-Avicom
International, Inc. Hughes Electronics and Raytheon/Hughes Aircraft will
jointly own and operate the Hughes Research Laboratories after the
transactions are consummated.
PRINCIPAL CONDITIONS TO THE TRANSACTIONS
The proposed transactions are subject to a determination by GM's Board of
Directors of a distribution ratio for the allocation of Class A common stock
between the holders of GM's $1-2/3 and Class H common stockholders, and
approval by both classes of GM common stockholders. In addition, the merger
of Hughes Aircraft with Raytheon, which is contingent upon the spin-off of
Hughes Aircraft, is subject to approval by the stockholders of Raytheon.
The proposed transactions also are subject to a variety of regulatory
approvals and actions, including anti-trust clearance and the receipt of
rulings by the Internal Revenue Service that the spin-off of Hughes Aircraft
would be tax-free to GM and its stockholders.
The GM Board of Directors has determined that it would not propose any
transaction that would result in a recapitalization of the Class H common
stock into GM $1-2/3 common stock at a 120 percent exchange rate as provided
for under certain circumstances in the GM Certificate of Incorporation. The
proposed transactions do not provide for the recapitalization of Class H stock
into GM $1-2/3 common stock.
Statements made concerning the transactions, the possibility of their
consummation, and their intended effects constitute forward-looking
information. The transactions and actions described herein are subject to
numerous conditions and uncertainties. Accordingly, there can be no assurance
that such transactions and related actions would be consummated, or if
consummated, accomplish the strategic objectives of Hughes Electronics or
General Motors.
CONTACT: Toni Simonetti of GM, 212-418-6380; Richard Dore of Hughes Electronics, 310-568-6324, or Karen Cullen of Delphi Automotive Systems, 810-857-4410 More details will be available, by fax, by calling PR Newswire at 800-753-0352, Ext. 708