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Automotive Industry

Gm's High-Flying Satellites Land On Icahn's Radar - Brief Article

Automotive Industries, Sept, 2000 by Dale Jewett

The most desirable product at General Motors right now apparently isn't a car or truck -- it's satellites.

Industry analysts agree that Hughes Electronics is the reason financier Carl Icahn served notice in August that he intends to spend at least $15 million on GM stock, and could acquire up to 15 percent of the automaker.

Icahn's move, which was disclosed by GM because it is in the midst of a $1.4 billion share buyback program, sent shock waves rippling through the GM empire. Could GM, the company once believed to be too big to ever be vulnerable pressure from hostile outside investors, be facing trouble from a man widely considered to be a corporate "raider?"

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Over the past two decades Icahn has cemented a reputation as a businessman willing to thrash the management of companies he buys stakes in for maximum gain. His move on GM came soon after Icahn's group posted a $600 million gain from an investment in Nabisco.

Icahn made his move soon after GM's stock hit a 52-week low of $56.94 a share at the end of July. The share price of all auto stocks has languished over the past two years as investors were attracted to high-flying technology and Internet stocks. But GM has been particularly hard hit as its market share continues to decline.

Currently, Hughes is GM's shining star. By being the top owner of satellites in the world, and owner of the DirecTV service, Hughes is in a prime position to take advantage of the explosion in data and telematics services.

Stock analysts estimate that Hughes accounts for about $22 of the value for each GM share.

Under pressure from investors to give a better return on their investments, GM earlier this year launched a stock buyback program swapped a huge chunk of Hughes shares (Hughes trades as a tracking stock to GM) for GM shares. The share exchange, combined with a donation to the automaker's pension funds, cut GM holdings of Hughes from about 70 percent to about 30 percent.

But would Icahn's stake give him enough power to force GM unload the rest of Hughes, pulling a huge support pillar out from underneath GM stock? Not likely, analysts say.

GM has historically not been swayed by pressure from outsiders, points out John Casesa, auto analyst with Merrill Lynch. Ross Perot had little success influencing management's plan in the 1980s, he notes.

"Also, GM can enlist powerful allies in any all-out battle for control, especially the UAW, which has little use for corporate raiders," Casesa says. "Icahn may have great ideas, but the reality of the situation is that he will need management's cooperation to implement them. We don't think a fundamental change is at hand."

The situation points up the need for GM to not only strengthen its core automotive business, but to support it with some additional units that have good growth potential.

But not even GM is safe anymore. Remember, it was the aborted move by Kirk Kerkorian on Chrysler that ultimately opened the door to Juergen Schrempp and Daimler-Benz AG.

Automotive Industry

Gm's High-Flying Satellites Land On Icahn's Radar - Brief Article

Automotive Industries, Sept, 2000 by Dale Jewett

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