Allied Corp. to Make Bid for Hughes : Giant Aircraft Firm Expected to Be Sold Off Within Month
Allied Corp. became the latest of half a dozen major corporations to emerge as key bidders for Hughes Aircraft, which is expected to be sold off within the next month, it was disclosed Monday.
Bids for Hughes are due in mid-May, and a final decision on awarding the El Segundo-based aerospace giant is expected by June 1, according to Dr. Donald Fredrickson, president of Howard Hughes Medical Institute, sole owner of Hughes.
The medical institute announced its plans to sell Hughes in early January and has been widely expected to complete a sale by this summer at a price of $5 billion to $6 billion. Irving Shapiro, a leading trustee of the institute, said a month ago that Hughes has generated higher interest than expected from potential bidders.
Those potential bidders include Ford Motor, General Motors, Boeing, Allied, General Electric and Signal Cos., according to knowledgeable sources. Representatives of those six firms have visited Hughes headquarters in recent weeks and met with Hughes Chairman Allen Puckett, according to the source.
“They are down to five or six serious contenders,” said another individual knowledgeable about Hughes financial matters.
Outright Sale ‘Likely’
Fredrickson said an outright sale of Hughes, rather than the still possible public offering, is “very likely.” He said some of the bids may be very complex and may require weeks of evaluation.
Signal and Allied are the only two firms that have publicly expressed their interest in Hughes, while financially more capable Ford, General Electric and Boeing have declined comment. General Motors has denied that it is looking at Hughes.
Allied Chairman Edward L. Hennessy said Monday that he discussed a possible bid for Hughes with the Allied board Monday morning and that an Allied bid will probably be made as part of a joint bid by several firms. The remarks were made after Allied’s annual meeting.
Hennessy said he discussed submitting a joint bid with several firms that are included in the list of the six key bidders, but he did not identify specific firms.
Analysts said that Allied’s resources are insufficient to take Hughes on its own. Hennessy told securities analysts last February that the firm would be capable of raising $3 billion for a major acquisition, according to Dean Witter Reynolds analyst Katherine M. Stults.
Indeed, Allied, headquartered in Morristown, N.J., has had a large debt since its bruising battle to acquire Bendix in 1982.
At year-end, Allied had $1.3 billion in long-term debt. Its balance sheet at the end of 1984 showed net worth of $3 billion out of total assets of $8.2 billion. The diversified manufacturing firm earned $488 million on sales of $10.7 billion in 1984.
An additional potential problem with Hennessy’s idea of submitting a joint bid is that it would undermine a key goal of the medical institute--to ensure that Hughes is not broken up in the future.
Hennessy said Monday that he does not believe that it is “possible” to split up Hughes and that a joint bid would be made on the basis of having a joint management ownership agreement among bidders.
Nonetheless, multiple corporate ownership could set the stage for a later breakup of Hughes when control of the firm passes out of the medical institute’s hands, an issue that has created some anxiety among Hughes management.
A Seasoned Veteran
Nevertheless, analysts were reluctant to dismiss Hennessy and say they regard him as among the most astute and seasoned veterans of takeover battles.
“Ed Hennessy has as much skill in generating cash as anybody. He could be called Mr. Financial Engineering,” said a Wall Street analyst.
Allied stock faltered on news of Hennessy’s remarks about Hughes. The stock closed at $44.125, off $1, as 1.1 million shares changed hands on the New York Stock Exchange. Normal daily trading volume is about 200,000 shares, Dean Witter analyst Stults said.
Fear Costly Auction
Stults said investors are nervous that Allied will become engaged in a costly auction that will quickly escalate the price of Hughes. But Hennessy said in a statement after the annual meeting that he regards even the $6-billion price as “much too high.”
Morgan Stanley, the medical institute’s investment banker, will conduct the sale through sealed bids. Frederick said Monday that he will regard bids as best and final offers.
But in previous sales of large corporations, particularly the sale of Hughes Helicopters to McDonnell Douglas last year, sealed bids were submitted, and then the sales process was thrown open to auction.