GM Expected to Name New Chief Executive

Moving to assure investors that it will further streamline and halt its sliding market share, General Motors Corp. is expected today to name president and chief operating officer G. Richard Wagoner Jr. as chief executive. Jack Smith, who currently holds that title, will remain chairman.

The development follows GM’s plan, announced Tuesday, to restructure its investment in Hughes Electronics Corp. in an effort to appease restive shareholders and prop up GM’s stock price. GM asserted Tuesday that it would continue to retain control of Hughes despite pressure from investors to spin off the subsidiary, which owns the fast-growing DirecTV satellite television business.

The giant auto maker, which has seen its market share decline to the lowest level since the 1930s, is holding a press conference today to announce the executive changes, although word of the promotions started leaking out late Tuesday night, when WXYZ-TV in Detroit reported that Wagoner would be named CEO.

Wagoner, 46, has been president and chief operating officer of GM since October 1998. Before that, he headed GM’s North American operations, the company’s largest and most profitable unit. Wagoner comes from a financial background rather than the engineering side of the car business.

He is credited with streamlining management of the world’s largest corporation while cutting the number of GM models and reducing design and manufacturing time.

Smith, 61, gave up the title of president to Wagoner in 1998, but remained chairman and CEO, titles he has held since 1996. He is expected to retire in May.

Despite record demand for cars and trucks last year, GM’s share of the U.S. market dropped to 29.2%.

Under the complicated financial restructuring of Hughes, which follows a realignment of the unit last month, GM will “reallocate” about $15 billion worth of shares it owns in the subsidiary, reducing its economic interest in the publicly traded stock from the current 65% to about 35% when the transaction is completed this summer.

The Detroit-based car maker, the world’s largest, said it will contribute $7 billion in Class H shares to its pension and benefit plans, which has an unfunded liability of more than $40 billion. In addition, it will offer GM common stockholders the ability to exchange as much as $8 billion of their shares for GM Class H shares, which track Hughes’ performance and have dramatically outperformed the parent over the last year.

“This is a win-win situation because it allows GM to fulfill its pension obligation using Hughes shares rather than cash or its own undervalued common stock, while giving GM investors the ability to migrate to a higher-growth stock,” said Tom Eagan, an analyst at PaineWebber Inc. “This is the second step in a slow restructuring that could eventually involve a spinoff of Hughes.”

Hughes trades on the New York Stock Exchange as a “tracking” stock, which gives shareholders the right to participate in the performance of Hughes’ assets but gives them no ownership. That is why GM can reduce its economic interest in the tracking stock without reducing its 100% control of Hughes.

GM shares rose more than 5% on the news, moving up $4.69 to close at $85.25. After a steep decline, GM’s Hughes shares recovered, up $2, to $114.50.

GM shares rose in part because the transaction will reduce the number of shares outstanding, driving up GM’s earnings per share by as much as $2.50, according to analysts.

Some analysts saw Hughes’ agreement last month to sell off its satellite manufacturing operation to Boeing as a possible precursor to a spin off, streamlining Hughes to concentrate on high-growth service businesses.

But analysts speculate that GM may be unwilling to relinquish the brightest star in its operation and further expose the auto maker’s underlying weakness. Hughes has paid for itself several times over since GM bought the company for $5.2 billion in 1985. In addition to the recent $3.75-billion Boeing sale, Hughes sold its defense unit in 1997 to Raytheon for $9.8 billion.

The 35% stake in Hughes that GM will retain after completing this transaction is valued at $18 billion.

So why sell Hughes at all? The financial maneuver allows GM to take advantage of a huge run-up in the value of GM Hughes shares while also appeasing GM shareholders who are upset they have not realized much of the benefit, in large part because of the carmakers’ lackluster performance.

GM shares have risen sharply this year, fueled in part by takeover speculation. Some analysts calculate that with the satellite TV unit and the parent company valued nearly equally--between $48 billion and $52 billion--a telecommunications giant could virtually pick up DirecTV for free by acquiring GM and selling off the auto operations.

In a surprising development Tuesday, EchoStar Communications Corp., DirecTV’s largest competitor, filed a lawsuit against the Hughes operation in U.S. District Court, seeking damages for alleged unfair and predatory practices that include giving retailers such as Best Buy inducements for not carrying EchoStar’s equipment. DirecTV called the suit “without merit.”

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Associated Press was used in compiling this report.

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The Hughes Aura

Shares of GM Hughes have more than doubled since September on excitement over its electronics and telecom businesses--a move that has also lifted shares of parent GM. Monthly closes and latest for both stocks on the NYSE:

Tuesday: $114.50, up $2

Tuesday: $85.25, up $4.69

Source: Bloomberg News

Los Angeles Times