Filed by General Motors Corporation
Subject Company - General Motors Corporation
and Hughes Electronics Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Commission File No.: 001-00143
FDfn
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FAIR DISCLOSURE
FINANCIAL NETWORK
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Hughes Electronics Corp. (GMH)
Analyst Conference Call
Event Transcript
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Thursday, April 10, 2003 10:30 am
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TRANSCRIPT PRODUCED BY FAIR DISCLOSURE FINANCIAL NETWORK, INC.
HUGHES ELECTRONICS CORP. (GMH) - ANALYST CONFERENCE CALL
THURSDAY, APRIL 10, 2003 10:30 AM
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THE OPERATOR:
Good day, and welcome to today's Hughes Electronics & News Corporation's analyst
conference call. Today's conference is being recorded. At this time, for opening
remarks and introductions, I would like to turn the conference over to Vice
President of Investor Relations, Mr. John Rubin.
MR. JOHN RUBIN:
Thank you, operator, and thank you, everyone, for joining us to discuss the
announced transaction between General Motors, Hughes and News Corp. On the call
to answer your questions are Jack Shaw, CEO of Hughes; Eddy Hartenstein,
Chairman and CEO of DIRECTV; Mike Gaines, Hughes' Chief Financial Officer; Larry
Hunter, Hughes' General Counsel; and Joe Walker, who is a senior adviser to GM.
In a moment, I will hand the call over to Jack for some brief introductory
remarks, followed by a Q&A session.
Before we proceed, I'm obligated to read to you the following. GM, Hughes and
News intend to file a proxy or consent solicitation statement and other
materials with the SEC in connection with the proposed transaction. Because they
will contain important information, stockholders are urged to read these
materials, which, when filed, will become available free of charge at the SEC's
web site, www.sec.gov. Stockholders will also receive information at any
appropriate time on how to obtain transaction-related documents for free from GM
and News. In addition, information regarding those persons who will participate
in the solicitation of GM stockholders has been filed by GM and Hughes with the
SEC. This call does not constitute an offer to sell or solicitation to buy or
vote securities in connection with the proposed transaction, which will only be
made by means of an appropriate proxy statement or prospectus. On this call, we
make statements that constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
including those described in the public filings of GM, Hughes and News with the
SEC, that could cause actual results to be materially different from those in
the forward-looking statements.
Before turning the call over to Jack, I would like to remind everyone that our
earnings call is scheduled for this coming Monday, so we will not be in a
position to answer any questions regarding the first quarter or our guidance.
With that, I'm pleased introduced Jack Shaw.
MR. JACK SHAW:
Thanks, John. As you know, last night, General Motors, Hughes and News Corp
announced a definitive agreement whereby GM will split off Hughes and sell its
nearly 20 percent interest in Hughes to News Corp for $3.8 billion or $14 per
GMH share. In addition, News Corp will acquire an additional 14 percent stake in
Hughes from GMH shareholders, which includes shares held by GM benefit plans,
through a mandatory exchange at a price valued at $14 per share, payable with
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about 122 million News Corp preferred ADR shares. The ADR shares payable to GM
and Hughes' public shareholders are based on the fixed price of $14 per Hughes
share, and will adjust within a collar range of 20 percent above or below the
ADR share price of $22.40.
This transaction is unique and special, and it brings together the two companies
that, unlike any others, have unrivaled experience and expertise in satellite
broadcasting services. The new Hughes, coupled with News Corporation's existing
satellite platforms, will have unparalleled capability and capacity to
distribute programming worldwide and locally here in the U.S. And as Hughes
shareholders, we can all be very excited about the transaction for several
reasons. First, the split-off will convert Hughes into an asset-based security
and eliminate the tracking stock discount that has hampered the stock's
performance over the years. We believe that this alone puts shareholders in a
much better position to realize Hughes's full value. Second, based on
Wednesday's closing price for GMH of $ 11.48, the transaction offers Hughes
investors a premium of about 22 percent on about 17.5 percent of their GMH
shares. Finally, Hughes will be aligned with a leading global media and content
company. In News Corp, Hughes will have a teriffic strategic partner with key
assets and leadership capabilities that we believe will take Hughes to the next
level. If you look at News Corp's track record, it is clear that their
entrepreneurial spirit has proven to be very successful in developing innovative
businesses and expanding markets. By bringing this entrepreneurial spirit and
vision to Hughes, I'm convinced that Hughes will grow faster than we could have
as a stand-alone company.
Upon closing of the transaction, Rupert Murdoch will become Chairman of Hughes
and Chase Carrey (ph) will become a full-time Hughes executive, and assumed the
duties of Hughes CEO. Eddy Hartenstein will be Vice Chairman of the Board and
will report to Chase. The leaders of the Hughes operating companies -- Roxanne
Austin, Pradman Kaul, Joe Wright and Larry Chapman -- will retain their current
positions. The Hughes Board of Directors will be comprised of 11 members that
will include six independent directors -- three News Corporation executives and
two Hughes executives. In addition, there have been many measures taken to
insure that the new Hughes is managed to maximize the value for its
shareholders. For example, the audit, compensation and nominating committees
will be comprised entirely of independent directors. In addition, all affiliated
transactions will be conducted in an arm's length fashion. For tax reasons, News
Corp will be restricted from acquiring additional shares of Hughes until the
first anniversary of the merger. In addition, News Corp cannot exceed 50 percent
ownership unless they gain the approval of a majority of the Hughes Board of
Directors, make a tender offer for 100 percent of Hughes or a third-party
tenders for 25 percent or more of Hughes shares. This transaction will require
approval by both the GM 1 2/3 and GMH shareholders as well as approval by a
number of domestic and international regulatory agencies. It is our goal to
close the transaction by the end of the year. I want to make it perfectly clear
to GMH shareholders that throughout the regulatory process, you can bet that we
will be highly focused on maintaining Hughes's operational excellence. Getting
to this day has been a long and difficult process. It has been especially
difficult for the men and women of Hughes, and they deserve high praise for
their tireless effort over the past few years, as the company's future hung in
the balance. However, without a doubt, I see this as a winning transaction for
everyone. It puts Hughes in a stronger position to achieve profitable growth,
maximize cash flow and create sustained long-term value for our shareholders,
customers and employees.
With that, I'll turn it back over to John.
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MR. JOHN RUBIN:
Thanks, Jack. Now, let's move onto the questions you may have. Keep in mind that
we may have members of the media on this call in a listen-only mode. I would
like to remind the media that they are not authorized to quote any participants
on this call, either directly or in substance, other than these representatives
of Hughes and News Corp. In addition, we are webcasting this call live on the
Internet, and an archived copy will be kept on our site.
Operator, we are ready for the first question.
THE OPERATOR:
(CALLER INSTRUCTIONS). Marc Nabi, Merrill Lynch.
THE CALLER:
I just wanted to ask a couple of questions. Number one, Jack, maybe just talk a
little about the payment going from GM Hughes to General Motors -- $275 million.
I know the rationale, but how did they come out with that payment, number one?
The second question is, what is going to change as far as -- we have now been
waiting for this for a while, for three years plus -- as far as the organization
and what the company is going to do to maybe more aggressively do PDRs (ph)? Is
this is going to be a price war type of phenomenon that is going to happen in
the future, or maybe spectrum sharing? Is anything going to change, than what
was already anticipated in the past by the management of DIRECTV and Hughes as
an organization?
MR. JACK SHAW:
Okey-dokey, Mark, I'll try to answer them. Concerning the dividend, $275
million, I think the best way to talk to you about it is to say that in this
kind of transaction, there are three companies -- General Motors, News, and of
course, Hughes. And it's not really as complicated as people might think it
could be; in order to make a transaction like this, it takes everybody to have
give and take and to want to do the deal. And in the case of Rupert and News
Corp, they had a number in mind, and they felt what was an appropriate price to
pay for Hughes. General Motors, of course, needed to have certain benefits from
the transaction. And from the Hughes side, we wanted to make it happen. So the
$275 million from Hughes upstreaming to General Motors is what it took to make
it happen.
Concerning the management and where we go from here, some of your questions
probably are a little bit premature, from the standpoint that News -- we are
still owned by General Motors, and we're going to operate as we have been
operating. And I will let Eddy kind of reflect on that a little bit. The
management of Hughes, other than myself, is going to remain in place. And so you
are going to have stability with management. We are going to continue what we
have been doing, which is to deliver more value to our shareholders. I was very
chagrined to see an article in the Wall Street Journal this morning; and I
thought it was quite unfair in how they characterized the performance of
DIRECTV, because it has been just great. And hopefully we will continue that; we
are putting all of the resources in place to do that. So I do not contemplate
changes in management. I think both Chase and Rupert have made that clear in
their particular discussions with the media yesterday. And we are going to stay
the course, and what we are going to do, however, as we have gotten a new owner,
will have a new majority shareholder -- I guess, minority shareholder -- with a
certain amount of control, who has a passion for the business, who has an
understanding of the business and who we believe collectively is just going to
be a tremendous partner for Hughes. So I think whatever you are seeing we are
doing under our current ownership, you will see us continue to do, but with more
vigor, more passion and maybe more resources under this new arrangement.
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MR. EDDY HARTENSTEIN:
I think you touched on a couple of them. What are we doing, what are we going to
do? I think, when you look at this, the ownership makeup of the new Hughes will
include as a significant investment by News Corporation here, but the benefits
of what it is to run satellite-based, subscriber-based pay-television-based
services on five continents around the world, and you bring that kind of
knowledge, the kinds of interactive platforms -- look what VSkyB (ph) is doing,
look what DIRECTV has started doing with HNS (ph), building the kinds of set-top
boxes that you have with the PVRs, take a look at what -- the other assets that
News Corp can bring to it, in terms of creating new and innovative content,
using it as a launch pad, the distribution of a launch pad that they have to
give it a try. And I think that ultimately benefits consumers, making it a
competitive alternative to cable, which we see as the target-rich opportunity
for us to continue growing -- is exactly where we are going to go.
THE CALLER:
Just one last thing, as relates to the management, or the new management, going
forward. Rupert Murdoch, Chase Carey -- are they able to give their views on the
organization or start helping form their views immediately? Or do they have to
wait for a deal to close, which is late '03/early '04, you said?
MR. JACK SHAW:
We have to worry about gun-jumping with the U.S. government. We have to make
sure that we are still in control and running the business, and we will do that.
You know me too, that I will do that. And obviously, I have great respect for
Rupert and for Chase, and obviously, we will be talking to them all the time.
But the basic decisions of how the company is being run have got to be ours, and
will be ours, and obviously, we will do the best we can to make sure that the
company is in even better shape than it is today, when this transaction finally
takes place.
THE OPERATOR:
Thomas Eagan, Fahnestock.
THE CALLER:
Down the road, John Malone of Liberty Media will undoubtedly play some kind of
role here, possibly even acquiring the balance of QVC. Could you guys talk about
the success that you have have in offering any kind of service with home
shopping?
MR. EDDY HARTENSTEIN:
It's really premature for us, sitting where we are today, 12 hours fresh, to
sort of assumre or not assume that Liberty or not as saying that Liberty or John
Malone would be involved in the operation of DirectTV. I can't really comment on
how well we do with respect to home shopping and/or QVC. Let me just suffice it
to say that those are services that we carry, and we carry them for a reason,
and that is that it makes good business sense for us; it's responsive to our
customers and consumers. And what will go on between Comcast and Liberty in
resolving where that ends up, we will just wait and see.
THE CALLER:
I want to follow up. Eddy, at the risk of asking a leading question, could you
talk about any loopholes in the program access rules that possibly Fox and News
Corp may be able to take advantage of?
MR. EDDY HARTENSTEIN:
This is something we discussed while we were negotiating. There are no loopholes
we see; it's exactly as we indicated in the releases yesterday. Any content
created by an affiliated party of News Corp -- which would include Fox and
whoever else, and you can bet there will be new ones that will be launched --
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will be made available to other multichannel video programming delivery services
on an equal basis, and that is basically it. There is nothing more
straightforward than that. Unlike some of the cable service loopholes, in terms
of satellite versus terrestrial delivered, there is nothing to hide there. We
think that it's just good business to do that, and I think everybody understands
the economics of launching new services these days. DIRECTV is a great platform,
with 11-plus million subscribers and growing. We all know that it takes more
subscribers than that to launch and maintain a basic service. So I don't think
there is anything hidden there, at all.
THE CALLER:
Do you see would be economic for DIRECTV to offer any of the Fox/News Corp
regional support services using either a Ka- or a Ku-band?
MR. EDDY HARTENSTEIN:
We provide, today, virtually every Fox and News Corp service. I think it's
everyone, even the regional sports, and going into where, or trying to speculate
now where those new services would be would be premature. I would have to sit
down and talk to Chase. We have got the capacity we need at Conus (ph) to
deliver those, and we are very like-minded. And I think you heard Rupert and
Chase talk yesterday about the importance of local channels and launch in as
many markets as we possibly can there. As you know, DIRECTV will have over 100
markets launched by the end of this year.
THE OPERATOR:
Benjamin Swinbern (ph), Morgan Stanley.
THE CALLER:
Could you walk us through the bottom of the collar, and what happens in terms of
cash or equity issued by News Corp, should their stock drop below the low end,
the 20 percent below? And then on the GM call, they mentioned at $14.08 of
value, the terms then change again. If you could just walk us through so we
understand that clearly, that would be helpful.
MR. MICHAEL GAINES:
Okay, sure. The basic ranges, first on the collar, equate to $17.92 to $26.88.
That's 20 percent plus or minus to the $22.40 of the News A (ph) stock price.
Below that, from $17.92 down to $14.08, there's a fixed exchange rate, and that
is at 0.78. Below $14.08, General Motors actually has the right to terminate the
agreement, but News then has the right to, in effect, top up the shares to get
back to that minimum value.
THE CALLER:
If that happens, and they utilize their right to top up, do they pay cash,
stock, or do they have the option? And at what values do they have the option to
use those two?
MR. MICHAEL GAINES:
They have the option. They can do it in stock, or they would have the right to
use cash. If they use cash, the cash would be at $14 per share.
THE CALLER:
And is the equity then issued to essentially pay $14 a share also?
MR. MICHAEL GAINES:
No; it would be back at the minimum, the calculation, using that fixed exchange
rate.
THE CALLER:
The 0.78?
MR. MICHAEL GAINES:
Right.
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THE OPERATOR:
William Kidd, Lehman Brothers.
THE CALLER:
This is Joshua Steiner in for William Kidd. A couple of quick questions. In the
recent past, it appeared as though Hughes was backing away from doing business
with NDS (ph) and Gemstar (ph). And I was just wondering if you have given any
thought yet to whether your new role with News Corp might change that?
MR. JACK SHAW:
To start with, whatever has been happening pre-News Corporation or NDS and
ourselves remains in place. And there is nothing in the agreement that affects
that. I'll have Eddy kind of talk to you about what he sees.
MR. EDDY HARTENSTEIN:
Yes. DIRECTV and NDS -- each business units or subsidiaries of the respective
companies are making their own decisions. I would point out that as recently as
last week, DIRECTV came to an agreement with Gemstar to carry the TV games
channel. So those decisions will continue to be made on an arm's length basis,
as they have been before, through the (indiscernible) portion of the time that
we have here for regulatory approval, and after that, as well. NDS is a
publicly-traded separate company. The provisions in this merger agreement are
such that all related-party transactions of attributable interest have to be
conducted on an arm's length basis. Any transactions of that nature will be
determined by the independent -- the audit committee, whose makeup is entirely
of independent directors. That's post-close.
MR. JACK SHAW:
And I think it's kind of interesting -- the Board of Directors that has been
jointly put together by News and Hughes and GM, as I think was in their press
release -- some press release -- is, as you can see -- are people of high esteem
in the industry, and have great track records, have had great careers. So I
think these affiliated transactions and how they are going to be handled and so
forth -- we have taken a lot of forethought and put a lot of effort into making
sure that that is all taking care of in and inappropriate manner post-closing.
Because, even though we will have a shareholder with 34 percent, that leaves the
rest of the GMH shareholders that we have to make sure the governance is taken
care of properly. So I think we spent a lot of time on that, and I believe we
put in place something that really will work.
THE CALLER:
Great, and then just one follow-up question. In light of Rupert Murdoch's
expressing no interest in the Cablevision satellite or its frequencies on this
morning's call, and Echostar's announcement recently that it will use SES (ph)
capacity to deliver additional video, it seems to us that there is a bit of a
widening spectrum deficit emerging between DIRECTV and Echostar. And I realize
that today, DIRECTV has got a bit of a channel capacity, and I am aware of the
plans to increase the local market rollout. But down the road as technologies
improved, do you see DIRECTV having a spectrum deficit? And if so, do you have
plans to cope with that?
COMPANY REPRESENTATIVE:
I don't think that you'll see us with a channel capacity deficit, and there are
multiple elements of how you get channel capacity. Certainly, improved
technology is the key one, and we've been at the forefront of that -- we've been
at it the longest. I don't think you should assume anything yet, in terms of
anything but the fact that we will be competitive, we will have the channel
capacity that we need to do it -- it takes to stay competitive with cable where
we are everywhere. I think, with respect to data services in the Ka-band. The
architecture of the SPACEWAY platform coming on is just a huge step function
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jump improvement over anything that is being proposed by anyone else, and again,
going back to the video capacity, I think Mr. Murdoch indicated that his
preference is, obviously, for CONUS capacity. And we will certainly have what we
need to stay competitive there.
THE OPERATOR:
Todd Mitchell, Blaylock.
THE CALLER:
I would like to know kind of how this transaction changes the business plans in
the near-term. News' comment is that they expect DIRECTV to be over 12 million
subs at the end of the year. You have commented that the business can grow
faster with News Corp. Is guidance going to come up, and conversely, is EBITDA
cash flow and cash needs going to come down? And also, along those lines, is
with the payment to GM of the $275 million, will Hughes be free cash flow
positive this year?
MR. JACK SHAW:
First, it does not change any of the near-term plans of the company. We are
still Hughes, and we still have an owner called GM, and we still have a business
plan that we have agreed to with our Board of Directors and so forth, and that
certainly is the direction that we will be going. We can't talk to you about
guidance, of course, because we're going to have our earnings call on Monday, so
we've just got to stay way far away from that kind of stuff now. I would suggest
you tune in on Monday -- make sure you come to the meeting. And Eddy, why don't
you talk about -- we heard Mr. Murdoch's pronouncements also, so maybe Eddy
could address those.
MR. EDDY HARTENSTEIN:
Yes. It's great to have a Chairman to be already raising the bar 12 hours after
the announcement of a proposed deal. We take it, though, as a vote of
confidence. And I think underlying all of this, a fundamental belief in the
value of this business, and more importantly, its potential. We see it, he sees
it, Chase Carey sees it -- we are very like-minded in the potential here, and
he's seen it in other theaters of the world, and he has certainly been waiting a
long time to enter into it here. I would just reemphasize with Jack, stay tuned,
listen to us on Monday, when we will have all the operating business units'
presidents on the call to talk about the first quarter, and then we can indicate
not only their individual performance but collectively that of Hughes, in terms
of revenue, EBITDA and all the financial metrics.
MR. JACK SHAW:
And we will let Mike Gaines talk about cash flow breakeven.
MR. MICHAEL GAINES:
I think, at this point, we would defer until Monday to talk about our status on
free cash flow for the year. I think our guidance has been to have negative $200
to negative $300 million of cash flow usage in 2003. And, like I said, if
there's a change to that -- which I am not saying there is -- we would update it
on Monday. That did not include any sort of payment of $275 million to General
Motors.
MR. JACK SHAW:
I think is important to note that I certainly would not have agreed to $275
million if I thought it affected our operational cash position and that, if you
remember, we went out on a bond offering and a debt offering. So we have spent a
lot of time making sure that we're just in great shape. And relative cash, $275
million, is a lot of money. But at the same time, it is something that we can
handle very nicely.
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THE CALLER:
And just as a quick follow-up, does DIRECTV have any renewal negotiations with
Fox scheduled for 2003?
MR. EDDY HARTENSTEIN:
No, I don't believe we do.
THE OPERATOR:
Steve Mather, Sanders Morris Harris.
THE CALLER:
Just going back to the collar issue, could you comment on any termination fees
-- whether you are within range, or above or below?
MR. MICHAEL GAINES:
I believe, with respect to the collar, there is one termination provision
related to that, that if the stock price falls below the level at which GM has
been able to terminate, and News Corporation does not elect to top up, there is
the potential -- or there is the termination fee payment from News to GM of $150
million.
THE CALLER:
And can News Corp elect to terminate, at any point, when you are below?
MR. MICHAEL GAINES:
I don't believe so.
THE CALLER:
And then, on the upside, is it -- I see one of the notes here that talks about
-- one of the GM reports that says 0.5208 is a fixed ratio above 20 percent?
MR. MICHAEL GAINES:
That's correct. Above a price of $26.88, there's a fixed exchange rate of the
number you mentioned.
THE CALLER:
So you'd be better to benefit, as long as I understand this right, if you are
within the range -- would be, I guess, the maximum benefit?
MR. MICHAEL GAINES:
Well, actually, as the News price goes above that $26.88, at that fixed exchange
rate, the H holder (ph) is actually getting more than $14 per share. And there
is no cap on that in the top end.
THE CALLER:
So the only, let's say, risk -- obviously, the price is down a lot today. Some
people may be involved -- speculating on some of the risk. The risk is simply
that the ADRs go -- one of them is it goes far below this range, apparently.
That is the logic behind some risk, I would imagine?
MR. MICHAEL GAINES:
There is some risk. We tried to set, though, a range around the News Corp price
that was a pretty large band -- 20 percent -- to try to deliver to our
shareholders a fair amount of certainty about the value they're going to
receive.
THE CALLER:
And just one other question. You have talked about synergy, and News Corp has
talked about synergy this morning -- not as much yesterday. It seems like most
of the focus is just on being cheaper, faster, better. They talk about
subscribers maybe inching up a bit, sack (ph) inching down a bit, churn inching
down a bit. Are there other, let's say, more traditional synergies between the
business units? You touched on it a little bit with Fox; are there other
synergies that impact HNS (ph), for that matter, or technology issues, piracy
issues that are really relevant, or is everything really just in the cheaper,
faster, better idea?
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MR. EDDY HARTENSTEIN:
I think if you look in cheaper, faster, better -- not to be glib -- there are a
lot of factors in there. Better, obviously, has many branches and connotations.
It's a better service, consumers want it more, better value -- that's reflected
in lower churn. The better you have a customer service set of metrics, there is
tremendous benefits in bringing churn down. News Corp, through its BSkyB
operation, certainly understands that. The British market is certainly different
than the U.S. market, but we are well cognizant of what even a tenth of a
percent improvement in churn does to the overall business. There are huge, huge
lever points there. So as we get through this initial phase here, as we are
going for regulatory approval, as we will be having pre-closing transition
meetings and discussions, we will formulate those things and try to articulate
them to you as we go along.
THE CALLER:
I am just trying to separate what is the cause -- you could go about your
business and continue your initiatives, but it seems like there's -- how do you
kind of characterize where the incremental is? Is it with dollars, is it with
people, is it with some of the News Corp/Fox operations that are worldwide?
MR. EDDY HARTENSTEIN:
Again, I think it might be a little bit premature. But if you go at something
aggressively and you have a very aggressive growth, and I am not talking all the
post-closing here, when we have actually closed the merger, you can envision a
variety of scenarios. And I think going and saying anything beyond that, right
now, is a bit premature for us.
THE OPERATOR:
Bill Jacobs, Harris Associates.
THE CALLER:
Obviously, corporate governance is a concerned under the new structure. A couple
of things -- one, to what extent is Chase Carey totally independent from News,
both in terms of any consulting fees or anything like that, and also in terms of
stock holdings? And then the other issue is, to what extent are the new
directors, the independent directors, going to have incentives set up so that
they are looking out for our interests?
MR. JACK SHAW:
I will try and answer that, although I think a little bit of it is probably
better answered from the folks at News. First, Chase Carey will be the President
and CEO, and then there is the Board of Directors and there is the Chairman of
the company. But the Board of Directors are who those people work for. The
independent directors -- again, if you have looked at the people that have been
selected by General Motors, Hughes and ourselves, they are a pretty standup kind
of Board. And I think you could expect the independent directors to stand up and
be counted and do what independent directors are supposed to do. So I think from
that standpoint, they will be like any other Board of a public company that have
to do their job within the balance of what is expected of them. I can't tell you
about the compensation; I don't know that you usually incentivize board members
to do something one way or the other. The independent board members certainly
have to be independent, so I think that we have worried this issue of governance
in so many meetings and so many hours that I think -- I believe, I truthfully
believe, we have come up with a governance that is not only going to protect H
share holders, but it is something that is practical to allow the company to
operate -- which, obviously, is important, too. So I don't know that I can say
too much more to you, Bill. I think we have had that uppermost in our minds, and
I believe we have all worried about it a lot. And I think we have put into place
the various people and language to cover the issues that concern you. But I --
it's probably words, until we show you that we can do it.
10
THE CALLER:
Right, do we know what Chase's interest in News is, at this point?
MR. JACK SHAW:
Well, Chase is -- obviously, he has been an employee of News, and he has been a
consultant to News, and certainly, he has done well in both of those positions.
So nobody is trying to hide that he is associated with News.
THE CALLER:
I guess I would feel a lot better if you guys could come out or if he could come
out and say, "All the News stock that I own and the options and everything else,
I am going to transfer into Hughes stock.
MR. JACK SHAW:
I certainly won't speak for Chase nor News, relative to that, nor the new Board
of Directors. They will have to review all those kinds of things.
THE CALLER:
To the extent that you are still our Chairman, I would love to see you in their
fighting on things like this for us. And I think that you have done a good job
setting it up so far, but I think there's some other things --
MR. JACK SHAW:
Bill, I take that as a complement. And we will talk to all of the folks.
THE OPERATOR:
Arye Borkoff (ph), UBS Warburg.
THE CALLER:
I just wanted to know if you could comment a little bit on the capitalization of
Hughes and DirectTV going forward. Obviously, the call is on Monday, but do you
expect any changes to the debt structure, the uses of cash or the need to
potentially raise debt at the company, going forward? Does News Corp have any
indication for how they treat the capitalization, going forward?
MR. MICHAEL GAINES:
I can't speak for what News Corp's intention or thoughts would be on that after
the close. What I will say is that today, after completing our recent financing,
we believe we are very well capitalized, we have a fully funded business plan,
really with excess cash, and believe we have funded business really for all the
cash flow needs to get us to cash flow breakeven. So I think we are very
well-positioned. I think the rating agencies will come out, if they have not
already this morning, and basically affirm our credit ratings, maybe even with a
positive inclination. So I think we are just really well-positioned, and we are
adequately capitalized on our own.
THE CALLER:
That's helpful. And the second part -- you have commented on this a little bit
over the last 12 hours or so, but you talked about how cable has a bundle and
you have a strong video offering that could get better, obviously, under the new
influence with Rupert Murdoch. But what do you think But what do you think about
-- what gives you confidence that you do not really necessarily need the bundle
to compete in those urban markets versus the cable? And then there any
opportunities for agreements with telephone companies, either on a marketing
bases or a (indiscernible) basis?
11
MR. EDDY HARTENSTEIN:
All of those possibilities exist. The jury is still out on bundling. It is
clearly something that we look at every day. DIRECTV has done and continues to
do very well with the arrows we have in our quiver. We will continue to look at
that. There are satellite solutions and there are, I think, other providers
through DSL and arrangements with ILECs and others that still remain a
possibility for us. We continue to look at those, and we will continue to do so
in the next nine months.
THE CALLER:
With News talking about, I guess, the upside on the interactivity and related
products on that front, why has not DIRECTV offered those in the past? What is
the new technology on interactivity?
MR. EDDY HARTENSTEIN:
Bear in mind, on interactivity, there is a significant -- and growing every day
-- percentage of the DIRECTV set-top boxes out there that have base-level
interactive functionality with the new PVR infusion -- the new second generation
augmented the first generation TIVO set-top boxes integrated with DIRECTV. There
is more and more. As always, it is what is the killer app? What will take hold?
And we have a variety of new services available; we can perhaps talk about those
more on Monday, on our call there. But here again, it's just a matter of
socializing it amongst first our subscriber base, and then seeing what takes
hold in the broader consumer marketplace from interactive -- what sells
interactively.
THE CALLER:
Last question. News Corp mentioned this morning that they felt that the Pegasus
business had some strategic value, in Rupert Murdoch's view. What do you think
is going to happen What to you think is going to happen in terms of the June
hearing with Pegasus? Do you think that it could be delayed as part of the
process, given that the closing of the deal is until the end of '03? And then,
related, do you have room in the DIRECTV capital structure to bring in Pegasus,
or does it have to be done outside of the entity?
MR. EDDY HARTENSTEIN:
It's not appropriate for me to comment on the coming trial dates here on June
3rd. I think, given how many times that has been extended, the judge in that
matter, I think, has indicated that the trial will proceed, and so it will, as
Mr. Carey and Mr. Murdoch indicated this morning. Certainly, with a coverage of
about 8 million of the 110 million households that NRTC and Pegasus have, that
is an area of interest. But emphasis there -- their feeling about it is exactly
what we have articulated all along. That is of interest to us, but it has to
make business sense for us if we were to come to any out-of-court solution. And
our history is one of trying to come to those kinds of solutions, but it has to
make business sense, so that on a call like this, it would make business sense
to all of you. We, up to this point, obviously, have not being able to come to
that, and we will see what happens in the future.
THE OPERATOR:
Andrew Baker, Cathay Financial.
THE CALLER:
I just wanted to confirm something you said regarding sharing in the upside of
News Corp, given that the collar is fixed at the top end at 0.521 shares. If
News Corp goes above the 20 percent upper end of the collar, and they decide to
pay cash, the cash -- no matter how high News Corp goes, if they decide to pay
cash, it will be kept at $14 per share; is that correct?
12
MR. MICHAEL GAINES:
No, it's not. On the upper end, if the price goes up, the cash per share would
go up, as well.
THE OPERATOR:
Luka Ipolito, Chesapeake Partners.
THE CALLER:
I would like to go back to this issue of the distribution from GMH to General
Motors -- which, frankly, I find very disturbing -- in the way it's being done,
and in the way it's being presented. First of all, you mentioned that you did it
because you had the liquidity because you issued bonds. So that is sort of like
saying you took value away from shareholders not once, but twice. Secondly, in
the previous conference call, GM, in its slide presentation, put up a slide that
showed $275 million coming into GM from GMH, but conveniently did not show $275
million going out from GMH into GM. How can you justify this?
MR. JACK SHAW:
First, I don't believe I said that we made the distribution because we went down
out and did bonds and debt, and therefore, you know, we had money. We made the
distribution because we felt it was in the best interest to separate ourselves
from General Motors and become an asset-based stock. And as I said, it's not a
complicated thing; it's that there are three companies involved in a transaction
like this, and each company has to decide how important the transaction is. And
we made the decision at Hughes -- when there was the gap between GM and News, we
made the decision at Hughes that we thought it was important enough to separate
ourselves into an asset-based stock that it was worth this $275 million
distribution. Again, it's nothing more spooky than that. I can tell you, in my
travels and speaking to shareholders all over the United States and abroad, it
has been reiterated to me over and over and over again we need to have an
asset-based stock. We need to get out of this tracking-stock basis, because it
is putting a cap on the market value of the company. And certainly, I take those
kinds of conversations very seriously with shareholders, and we felt this was a
good deal to make, and we think it will add value to GMH shareholders over the
long run.
THE OPERATOR:
Ted Wachtel (ph), Millennium Partners.
THE CALLER:
Following up on this very subject of the $275 million, as a GMH shareholder, I
look at what is happening here and I see that effectively, General Motors
Corporation is being paid $15 cash for their stock. Yet they are the ones who
are in need of liquidity. They are the ones to really need out of their stock.
So we are getting stock in a preferred share of News Corp at a $14 level while
GM is being cashed out at $15. How does that reconcile with the fact that they
are the ones who need liquidity? And how does that reconcile with you adequately
fulfilling your fiduciary responsibility to us?
MR. JACK SHAW:
Obviously, when we go through a transaction like this, we have more lawyers then
I care to name, and Hughes has two investment bankers advising us. General
Motors, on their side, has two investment bankers. So certainly, I take issue
with you suggesting that we have not exercised our fiduciary responsibility,
because I think we have. We then have our Board of Directors, Hughes; we have
the General Motors Board of Directors. And then we have a capital stock
committee that was put in place many years ago for just this purpose, to assure
that each class of shareholders, the GM 1 2/3 and the GMH shareholders, are
being dealt with appropriately. That does not mean that both shareholders have
to be dealt with equally. But I do take issue when you insinuate that maybe we
13
have not fulfilled our fiduciary responsibilities, because I think we have, in
spades.
THE CALLER:
Will, let me ask you this. The $275 million -- that was what GM required in
order for this to happen, that number is the result of ardent negotiation, on
your part, on our behalf, to get that number down as low as you possibly could?
MR. JACK SHAW:
Absolutely.
THE CALLER:
Well, I can't express it in any other way than it just -- it all doesn't really
pass the smell test that they get paid $15 cash and we get $14 in stock.
MR. JACK SHAW:
I'm sorry you feel that way, Ted, but we obviously don't. And we think that
becoming an asset-based stock and being associated with a company like News will
bring even more additional value to the GMH shareholder, and we would not have
done this deal if we didn't. But if we have got a difference of opinion, we have
got a difference of opinion. But I believe we have conducted ourselves in a very
appropriate manner.
THE CALLER:
Well, suffice it to say, shareholders are speaking with their feet, because the
stock is at $10.25.
MR. JACK SHAW:
Okay, thank you.
THE OPERATOR:
Tony Reiner, Clinton Group.
THE CALLER:
So you have heard from some of the shareholders on this call. As far as who has
to elect for this, I know you need each class of shareholder to elect. How does
the pension stake work, as far as election goes?
MR. JACK SHAW:
I'll let Larry Hunter -- can you answer that?
MR. LARRY HUNTER:
The GMH shareholders and the GM 1 2/3 shareholders each vote separately as a
class, and then as a combined class, and the pension fund would vote its shares
in the way it deems appropriate.
THE CALLER:
Okay. Who controls their stake?
MR. LARRY HUNTER:
The management of the pension fund.
THE CALLER:
Well, as Mr. Wachtel just said before, and you can see what has happened in the
stock, there is a lot of dissatisfied shareholders, me included. It seems we're
not even getting a chance to properly vote and show our disappointment.
MR. LARRY HUNTER:
You have the same right to vote as everybody else. I don't understand --
MR. JACK SHAW:
What does that mean, Tony? We are going to go for a shareholder vote.
THE CALLER:
Okay, but the pension shares and all the other shares involved with the vote --
I mean, it seems that there is no other way to show our dissatisfaction.
14
MR. JACK SHAW:
I think that is generally how a shareholder does show their dissatisfaction, is
in a vote. And I don't mean to be -- I want to be sincere about this, but when
you bought a tracking stock, you must have known of the association with General
Motors, and so forth. I didn't --
THE CALLER:
Yes, I understand how a tracking stock works. I understand all that, but based
on who has what percentage of stock, and as a couple of callers and Mr. Wachtel
right before me just stated, it really does not seem that anybody was fighting
on our behalf.
MR. JACK SHAW:
I really, really disagree with you, Tony, and I disagree with Ted, also. We have
bled a lot of blood over the last three years fighting on behalf of the GMH
shareholders, and I will continue to do so as long as I hold this position. Our
bankers have fought on our behalf. We think this is a great deal for Hughes. And
we would not have agreed to it if we had not. So I understand there will be
disagreements about those kinds of things, but I really, really take issue when
people say that we have not stood up for the H shareholders, because I think we
have.
THE CALLER:
Okay. Why don't we have any say in whether we get any cash as opposed to all
stock?
MR. JACK SHAW:
This is the deal that we put together. And as matter of fact, you do. When you
vote, you have have a say.
THE CALLER:
We have a say in whether we get, based on your discretion, News Corp shares or,
I guess in the long run, Fox shares, or keep our GMH shares, while GM is going
to get cash. And we don't get to participate in the cash.
MR. JACK SHAW:
I understand that. That is the deal that we have put together, and obviously, if
you don't like this deal, and you vote against the deal, and their are enough
shareholders that do that, then it won't go through. We don't believe that
that's the case, and I tell you I didn't do this, and we didn't conclude this
deal in a vacuum. I understand you and Ted may have difficulty with it, but I
have talked to so many shareholders who felt that to be separated from General
Motors was kind of the most important thing. And so, you know, I'm sure that
there will be disagreements, but it is the deal.
MR LARRY HUNTER:
And I guess I would just point out that GM has a fixed price that the H
shareholders, in effect -- for the bulk of their stake, they are getting an
asset-based stock. And we think it has a lot of upside. To say that the H
shareholders are only getting 14, we don't think accurately characterizes what
is going on here.
THE CALLER:
I understand. Thank you very much.
MR. JACK SHAW:
Thank you, Tony. Maybe one more question?
THE OPERATOR:
Glenn Miller, Oscar Gressenson (ph).
THE CALLER:
With regard to -- I just want to be clear with regard to what public
shareholders are getting. We have heard the term mandatory, etc., and 17.5
percent. So am I to understand that if I am a GMH shareholder, that 17.5 percent
of my shares will be taken from the mandatory in exchange for the preferred News
Corp shares?
15
MR MICHAEL GAINES:
That's correct. You would receive -- in effect, 82.5 percent of your shares
would be converted to the Hughes asset-based stock, and so the other 17.5
percent, there would be a mandatory exchange into the new stock.
Operator, I just have one last thing to say. Thank you all for joining us today.
If you have any other questions, please feel free to contact Hughes investor
relations. And thank you for calling.
(CONFERENCE CALL CONCLUDED)
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On April 9, 2003, General Motors Corporation ("GM") and its
subsidiary Hughes Electronics Corporation ("Hughes"), together with The News
Corporation Limited ("News"), announced the signing of definitive agreements
that provide for the split-off of Hughes from GM and the simultaneous sale of
GM's 19.9 percent (19.9%) economic interest in Hughes to News. In addition,
pursuant to these agreements, News would acquire an additional 14.1 percent
(14.1%) stake in Hughes from holders of GM Class H common stock through a merger
of Hughes and a wholly-owned subsidiary of News, with Hughes as the surviving
corporation. The definitive agreements were filed as Exhibits to the Form 8-K
filed by Hughes Electronics Corporation today and are incorporated by reference
into this filing.
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[HUGHES LOGO]
Dear Hughes Network Systems Customer:
The recently announced transaction involving General Motors (GM), Hughes
Electronics (HE) and News Corp., which involves the split-off of HE from GM and
the ownership by News Corp. of 34% of Hughes Electronics, is a significant
milestone in the history of Hughes Network Systems.
We believe this to be a very positive development for HNS and its customers
across the enterprise, SME/SOHO and consumer sectors.
HNS remains committed to providing DIRECWAY broadband-by-satellite services and
networks and to driving growth across all sectors. Furthermore, HNS is committed
to maintaining the high level of performance and customer support we offer our
customers -- both current and future.
We still see a strong consumer market for broadband services, where we hold the
largest number of customers in the broadband-via-satellite sector, and we will
continue to improve the service to drive growth and customer retention.
In the corporate network sector, where Hughes holds more than 50 percent of the
global satellite networking business, we will continue to pursue new
opportunities and strategic, value-added relationships that aggressively drive
growth across many industry sectors in North America and International markets.
In addition, HNS' SPACEWAY program is an important part of our business. This
advanced Ka-band satellite platform, which is owned and will be operated by HNS,
will dramatically expand the penetration of high-speed services, broadband and
multimedia applications across North America.
As we look to the future, virtually every metric by which we judge ourselves,
and by which the investment community evaluates us, is stronger now than ever
before. As a result, Hughes Network Systems is operating more efficiently and
competitively than it ever has before. At HNS, we firmly believe our customers
come first and we look forward to continuing to demonstrate that to them for
many years to come.
Best,
Pradman Kaul
Chairman and CEO
Hughes Network Systems
In connection with the proposed transactions, General Motors Corporation ("GM"),
Hughes Electronics Corporation ("Hughes") and The News Corporation Limited
("News") intend to file relevant materials with the Securities and Exchange
Commission ("SEC"), including one or more registration statement(s) that contain
a prospectus and proxy/consent solicitation statement. Because those documents
will contain important information, holders of GM $1-2/3 common stock and GM
Class H common stock are urged to read them, if and when they become available.
When filed with the SEC, they will be available for free (along with any other
documents and reports filed by GM, Hughes or News with the SEC) at the SEC's
website, www.sec.gov, and GM stockholders will receive information at an
appropriate time on how to obtain transaction-related documents for free from
GM. Such documents are not currently available.
GM and its directors and executive officers and Hughes and certain of its
executive officers may be deemed to be participants in the solicitation of
proxies or consents from the holders of GM $1-2/3 common stock and GM Class H
common stock in connection with the proposed transactions. Information regarding
the participants and their interest in the solicitation was filed pursuant to
Rule 425 with the SEC by each of GM and Hughes on April 10, 2003. Investors may
obtain additional information regarding the interests of such participants by
reading the prospectus and proxy/consent solicitation statement if and when it
becomes available.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities Act of 1933,
as amended.
Materials included in this document contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause actual results to be materially different from
historical results or from any future results expressed or implied by such
forward-looking statements. The factors that could cause actual results of GM,
Hughes and News to differ materially, many of which are beyond the control of
GM, Hughes or News include, but are not limited to, the following: (1) operating
costs, customer loss and business disruption, including, without limitation,
difficulties in maintaining relationships with employees, customers, clients or
suppliers, may be greater than expected following the transaction; (2) the
regulatory approvals required for the transaction may not be obtained on the
terms expected or on the anticipated schedule; (3) the effects of legislative
and regulatory changes; (4) an inability to retain necessary authorizations from
the FCC; (5) an increase in competition from cable as a result of digital cable
or otherwise, direct broadcast satellite, other satellite system operators, and
other providers of subscription television services; (6) the introduction of new
technologies and competitors into the subscription television business; (7)
changes in labor, programming, equipment and capital costs; (8) future
acquisitions, strategic partnerships and divestitures; (9) general business and
economic conditions; and (10) other risks described from time to time in
periodic reports filed by GM, Hughes or News with the SEC. You are urged to
consider statements that include the words "may," "will," "would," "could,"
"should," "believes," "estimates," "projects," "potential," "expects," "plans,"
"anticipates," "intends," "continues," "forecast," "designed," "goal," or the
negative of those words or other comparable words to be uncertain and
forward-looking. This cautionary statement applies to all forward-looking
statements included in this document.
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