GM Bid for Hughes Aircraft Detailed

Here are financial details of General Motors’ winning bid for Hughes Aircraft:

GM will pay $2.7 billion in cash and about $2.5 billion in a new issue of stock, to be called class H. That stock is similar to that issued by GM last year when it acquired Electronic Data Systems.

Terms call for GM to issue 70 million class H shares, of which the Howard Hughes Medical Institute, the aircraft company’s sole owner, will receive 50 million. About 15 million shares will be distributed to holders of GM’s original common stock, and GM plans to sell the remaining 5 million through a public offering. The class H shares will each have half a vote at shareholder meetings.

GM agreed to support a $60-per-share value of the medical institute’s shares for a period of three years after they are issued. But GM’s liability is limited to paying no more than $40 per share. Thus, if the stock’s price falls below $20 and the institute decides to sell, GM will be obligated to pay the institute no more than $40 per share.

The class H shares are expected to trade initially at about $50 to $55 per share, according to auto analyst Joseph Phillippi of E. F. Hutton. But Phillippi and other analysts said they have the potential to go much higher based on the earnings capacity of the new subsidiary, which will have annual sales of about $8 billion.

The stock will pay dividends based on the profitability of Hughes Aircraft and GM units that are being placed in a new subsidiary, to be called GM Hughes Electronics. The size of dividends was not disclosed, but analysts expect them to resemble the 25% pay-out ratio on GM’s class E stock.

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