And For His Next Trick...

Can Carl Icahn force GM to sell Hughes Electronics?

It isn't a show you'll pick up on any satellite dish. But for General Motors Corp., the latest drama stars longtime corporate raider Carl Icahn and a cast that includes News Corp.'s Rupert Murdoch, and maybe even Walt Disney Co. Chairman Michael D. Eisner. Icahn, fresh from pocketing a $600 million profit after forcing Nabisco Group Holdings to sell off its food unit, told GM executives on Aug. 16 that he was seeking to buy as much as 15% of the troubled auto maker. Icahn's aim: to force GM to sell off Hughes Electronics Corp., its fast-growing satellite TV unit.

Icahn, who declined to comment, is already putting the heat on GM management. Sources close to the billionaire investor say he has met with large GM investors and believes he has the support to begin to push for a deal. One likely buyer is Murdoch, who earlier this year made overtures to buy Hughes.

Icahn is hardly the first to push for a Hughes sale. Earlier this year, GM bowed to shareholder pressure and reduced its stake in Hughes. But the auto maker has so far resisted a spin-off. That's because GM says Hughes, with a current market capitalization of $29 billion, is undervalued. GM wants to hold Hughes longer, build its value and potentially merge it with a big player such as News Corp., Microsoft, or Disney.

ARM-TWISTING. But if Icahn has the backing of large investors, GM may have no choice. The auto maker, with a lagging stock price that does not adequately reflect its valuable Hughes unit, has been viewed as a potential takeover target of late. Management has told analysts in the past that it would consider selling some of its Hughes stake if a strong hostile bid that threatens the parent company gained momentum. GM "is clearly wary of Icahn's intentions," says former GM manager Michael R. Bruynesteyn, now an auto analyst with Prudential Securities Inc. "In a worst-case scenario, they would spin off Hughes because they're auto guys at heart."

In addition to News Corp.'s interest, investment bankers have also brought the deal to Disney. Third behind AT&T and Time Warner Inc. among subscription TV services, Hughes' DirecTV currently has nearly 9 million customers. With that large a base, News Corp. or Disney could guarantee nationwide delivery of their programming, an issue that became vital for Disney this spring when Time Warner briefly stripped Disney's ABC network from several of its cable systems. During that fight, Disney gave away free DirecTV dishes to Time Warner cable subscribers in Houston. Disney and News Corp. refuse comment.

The more likely actor in Icahn's unfolding drama is Murdoch. He sees DirecTV as the missing piece in a constellation of satellite holdings he already has in Europe, Asia, and Latin America. Murdoch has said he'll take those holdings public later this year. He could use the newly issued stock as currency in a merger with Hughes, says one Murdoch insider. News Corp. and Hughes are already partners in a Japanese satellite system.

Icahn is a man who understands how to apply pressure, as Nabisco found out during its 5-year haggling with him. And Wall Street and a lot of restless shareholders are more than happy to sit back and cheer him on.

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