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Boeing near Hughes deal
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January 12, 2000: 7:20 p.m. ET
Aerospace firm near buying GM Hughes' satellite business for $3.75B, source says
By Staff Writer Jamey Keaten
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NEW YORK (CNNfn) - Boeing Co., the nation's largest aerospace company, is in talks to buy the satellite-making unit of Hughes Electronics Corp. for roughly $3.75 billion in cash, an industry source familiar with the matter said Wednesday.
A deal for Hughes' satellite business could come as early as Thursday afternoon eastern time, following a regularly scheduled meeting of Boeing's board, the source said.
Hughes, a subsidiary of General Motors, and Boeing declined comment about the matter.
Analysts said such a deal would allow Boeing to boost its portfolio of satellites, which now consists primarily of low-earth orbit satellites, with Hughes' geo-stationary satellites that circle the globe in a fixed orbit at altitudes around 22,000 miles.
It also would provide a key revenue stream for Boeing because Hughes currently sells half of its satellites to itself, meaning Boeing likely would take up that slack if it buys the satellite business.
For Hughes, the move would offer a tidy exit strategy for a segment that has decidedly trimmer profit margins than its high-profit service businesses, such as DirecTV.
Hughes also owns an 81 percent stake in PanAmSat (SPOT), a network systems unit that manufactures set-top boxes used to deliver DirecTV signals to subscribers, as well as a high-speed, or "broadband" communications business, analysts said.
The sale of the satellite business, however, which accounts for about 40 percent of Hughes' revenue, would be a sharp change of tack for the company.
"It would be a huge gesture. The history of this company is satellite manufacturing," said Robert Kaimowitz, an analyst with ING Barings who has a "buy" rating on Hughes shares. "It would be a major change of the company's thought process that should benefit its shareholders."
Press reports earlier in the day estimated that Hughes' satellite unit could fetch as much as $4 billion dollars.
Cai von Rumohr, an aerospace analyst at SG Cowen, said that would amount to "an off-the-wall price."
Analysts said the satellite unit is best valued at about $2 billion to $3 billion, based on estimated 1999 sales of roughly $2.2 billion and $225 million in earnings before interest, taxes, depreciation and amortization.
Shares of Hughes (GMH) rose 4-1/4 to 106-13/16, while Dow industrial issues GM (GM) rose 3-7/16 to 76-3/8 and Boeing (BA) added 3/16 to 43-1/16. 
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