General Motors Corp. yesterday asked shareholders to approve a new class of common stock designed to help the auto maker complete its proposed $5.1 billion acquisition of Hughes Aircraft Co. by Dec. 31.
GM is the world's largest auto maker. California-based Hughes is one of the world's largest defense and aerospace companies.
Proponents of the merger, tentatively approved by the boards of the two companies in June, say that the combination will accelerate GM's drive into high-technology industries, while giving Hughes the extra management muscle it needs to increase its share of defense dollars.
Opponents say that the deal is, at best, a whimsical affair that brings together two totally different companies at enormous cost.
GM vigorously defends the proponents' view in its solicitation of shareholder approval of the changes in the auto maker's articles of incorporation needed to complete the deal.
GM is asking its stockholders to authorize the creation of 600 million shares of Class H common stock by mail ballot. The process is expected to take about a month.
Of the 600 million Class H shares, GM will use 50 million to complete its purchase of Hughes from the Howard Hughes Medical Institute -- a private, Bethesda-based, nonprofit research organization specializing in genetics, immunology, metabolic control and neuroscience.
GM will not receive a cash payout in return for the Class H shares it plans to transfer to the medical institute. GM accountants say that stock transfer will cost the auto maker $2.4 billion in revenue foregone by transferring the stock to Hughes.
The other $2.7 billion of the $5.1 billion Hughes acquisition cost will be made up in cash or cash equivalents, according to GM officials.
According to GM's agreement with the medical institute, the auto maker must distribute at least 15 million additional shares of the Class H stock to current GM common stock holders within 270 days after the acquisition is completed.
GM officials describe the distribution of the 15 million Class H shares as giving current GM stockholders "an immediate opportunity" to participate in the performance of the new company created by the GM-Hughes merger.
That new company will be GM Hughes Electronics Corp. (GMHE). It will consist of Hughes Aircraft, which will operate as an independent company with its own board of directors, and the newly created Delco Electronics Corp.
Delco Electronics -- GM's lead unit in the design and manufacture of automotive electronics, entertainment systems and business products -- includes the Delco Electronics Division, the Instrument and Display Systems Business Unit of AC Spark Plug Division and Delco Systems Operations.
Hughes has a book value of about $1.1 billion, which means that GM is offering what amounts to a $4 billion premium for the company.
GM wanted to charge that premium, or "good will" cost, against its worldwide operations. But the Securities and Exchange Commission objected to that plan.
As a result, the premium payoff will be charged against GMHE, which some analysts believe could devalue the Class H stock. GM and Hughes officials, and other Wall Street analysts, disagree with that assessment.
The premium will be paid off over a period of 40 years. The value of the Class H stock largely will be determined by the performance of GMHE over that period, according to GM officials.
But there is a big contingency in all of this, according to GM spokesmen. If the auto maker does not complete its purchase of Hughes by Dec. 31, the Howard Hughes Medical Institute is free to walk away from the deal, without penalty, and pursue other buyers.
One GM spokesman said yesterday that he expects his company to close the deal before Dec. 31.