The buzz may soon get louder: Hughes Electronics (GMH), the world's largest vertically integrated satellite company, is a buyout target. Forget the rumor that News Corp. will go after General Motors to get Hughes, whose stock is 69% owned by GM. "Somebody seriously interested in Hughes will go directly to GM, and it will be a U.S. technology giant that can swing it," says a New York investment manager, who has been accumulating GMH shares. He argues that it will take a cash-rich buyer to persuade GM to sell. At the right price, he says, GM will sell Hughes, which has become a hot property. He thinks the major suitor wants Hughes for its satellite system to enhance its space on the Internet. The satellite opens up new markets to people accessing the Internet, he adds. Hughes's direct-broadcast satellite unit, DirecTV, is the largest in the U.S., with 8.3 million customers. It provides hundreds of channels by satellite to viewers in the U.S., Latin America, and Japan.
DirecTV's new lure: It is offering local network channels on its system. Analyst Marc Nabi of Morgan Stanley Dean Witter says offering local TV will spur demand beyond expectations. In the first quarter, DirecTV added 405,000 subscribers, a 33% jump from last year. With such results, says Nabi, the 1.8 million additions he forecasts for 2000 could be low. DirecTV offers local services in 23 cities.
"A buyout price for Hughes could exceed 196 a share," says William Harnisch, president of investment firm Forstmann-Leff Associates, which owns under 4% of the stock float of 112 million shares. The stock is at 117. With a market cap of $51 billion, GMH shares are currently worth $46 a share in GM stock, now at 82 a share. But even without a buyout, Harnisch thinks the stock will hit 170 this year, based on the fast growth in signups for DirecTV. A GM spokeswoman says there's no current plan to sell Hughes.