Hughes Trustee Calls GM Rebate Attempt ‘Silly’
Legal efforts by General Motors to get a rebate on the $5.2 billion it paid in 1985 for Hughes Aircraft are “unseemly” and “silly,” a leading trustee of the medical institute that sold Hughes to GM said Friday.
Irving Shapiro, a trustee at the Howard Hughes Medical Institute, said the auto maker is trying to “nibble away” at the assets of the medical research organization in Bethesda, Md., even though the amount of money in dispute is “less than petty cash” for the giant corporation.
“I think it is quite unseemly of GM,” said Shapiro, former chief executive of Du Pont Co., in a scathing commentary on GM and its Chairman Roger B. Smith.
GM spokesman Bruce McCristal declined to comment, and GM executives refused to be interviewed.
GM is asserting in private arbitration that it has lost as much as $180 million in contracts held by Hughes Aircraft at the time of the acquisition. The losses occurred on a large Navy program, known as the Joint Tactical Information Distribution System, or JTIDS, which was canceled by the Navy in late 1985.
“Clearly, we are not liable for this at all,” Shapiro said, adding that the entire cost of the contract cancellation is difficult to put in concrete terms.
When GM purchased Hughes from the medical institute in 1985, it outbid Ford Motor and Boeing by increasing its offer at the last minute, Shapiro recalled.
Doubts Any Concern
“I have a great deal of difficulty imagining that Roger Smith was worried about JTIDS when he submitted his final offer,” Shapiro said.
“The whole thing is rather silly--to say the man who is the high bidder got misled into making the high bid because he was misinformed about the JTIDS contract. It is less than I expect from the chief executive officer of General Motors,” he added.
The comments seem to remove any doubt that the two organizations are feuding. The medical institute is the largest investor in General Motors, holding special shares worth $3 billion.
Asked to describe the relations, Shapiro said, “They are at arms length. The simple fact is that you have done a $5-billion transaction. And here you have one of the largest corporations in the U.S. trying to nibble away at an institute doing important medical research. These are numbers that are less than petty cash in the GM world.”
A high-powered arbitration panel has been selected to adjudicate the dispute. It includes former Atty. Gen. Griffin Bell, former Atty. Gen. Nicholas Katzenbach and Robert Bork, whose nomination to the U.S. Supreme Court was rejected by the Senate last year.
Shapiro said the arbitration should be completed by spring and that he expects GM to be unsuccessful in its effort to retroactively reduce the price it paid for Hughes.
But if the medical institute is found liable for the contract losses, then it would have to consider subsequent legal action against both current and former Hughes officials, Shapiro said.
“That’s the next logical step,” he added.
The trustees knew little about the day-to-day operations of Hughes Aircraft, and they had to rely on a due diligence review performed by investment bankers and attorneys, Shapiro said. Those investment bankers and attorneys relied on Hughes officials for a full disclosure of the aerospace firm’s operations.
After the dispute between GM and the medical institute began to heat up, the medical institute asked four top Hughes Aircraft officials to give depositions, but they refused, Shapiro said.
They were former Hughes Chairman Allen Puckett, former Hughes Vice Chairman Richard Alden, current Hughes President Donald White and former Hughes Controller J. Stanley Crum.
“It is disappointing, but we have documents to show what they told us,” Shapiro said about the refusal of the four to give depositions. “They have ties with GM now, and they just do not want to be seen as assisting us, but it is disappointing just the same.”
Puckett responded: “I was asked for a deposition, and I did give one.” The other three could not be reached.
Shapiro, who is a senior partner in the influential law firm of Skadden, Arps, Slate, Meagher & Flom, played a crucial role in the sale of Hughes Aircraft in 1985. He has been an influential member of the nine-member board of trustees of the medical institute, which was created by Howard Hughes in 1953.
