<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
(DATED APRIL 29, 1996)
TO
SCHEDULE 13E-3/A
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
GENERAL MOTORS CORPORATION
(NAME OF ISSUER)
GENERAL MOTORS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
CLASS E COMMON STOCK
(TITLE OF CLASS OF SECURITIES)
37044240
(CUSIP NUMBER OF CLASS OF SECURITIES)
J. MICHAEL LOSH
EXECUTIVE VICE PRESIDENT
GENERAL MOTORS CORPORATION
3044 WEST GRAND BOULEVARD
DETROIT, MICHIGAN 48202-3091
(313) 556-3549
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPIES TO :
WARREN G. ANDERSEN ROBERT S. OSBORNE, P.C.
GENERAL MOTORS CORPORATION KIRKLAND & ELLIS
3031 WEST GRAND BOULEVARD 200 EAST RANDOLPH ST.
DETROIT, MICHIGAN 48202-3091 CHICAGO, ILLINOIS 60601-6636
(313) 974-1528 (312) 861-2368
This statement is filed in connection with (check the appropriate box):
a.[X]The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [XThe]filing of a registration statement under the Securities Act of
1933.
c.[_]A tender offer.
d. [_None]of the above.
Check the following box if soliciting materials or an information statement
referred to in checking box (a) are preliminary copies: [X]
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<PAGE>
ITEMS 1 THROUGH 17. INTRODUCTION
This Rule 13e-3 Transaction Statement is being filed by General Motors
Corporation, a Delaware corporation ("General Motors"), in connection with a
split-off (the "Split-Off") of General Motors' wholly owned subsidiary,
Electronic Data Systems Holding Corporation, a Delaware corporation (together
with its subsidiaries, "EDS"), pursuant to a merger in which each outstanding
share of General Motors Class E Common Stock, $0.10 par value per share (the
"Class E Common Stock"), will be converted into one share of EDS Common Stock,
$0.01 par value per share (the "EDS Common Stock"). As a result of the Split-
Off, EDS will become an independent, publicly held company, holders of Class E
Common Stock will become stockholders of EDS rather than of General Motors,
and Class E Common Stock will cease to exist. All other outstanding shares of
General Motors capital stock will remain outstanding, and the terms of such
stock will remain essentially unchanged.
EDS has filed a Registration Statement on Form S-4 (as amended and including
exhibits, the "Registration Statement") with the Securities and Exchange
Commission concurrently herewith in connection with the Split-Off.
The cross reference sheet on the following pages, which is supplied pursuant
to General Instruction F to Schedule 13E-3, shows the location in the
Solicitation Statement/Prospectus that forms a part of the Registration
Statement of the information required to be included in response to the items
of this Transaction Statement. The information set forth in the Registration
Statement, which is attached hereto as Exhibit (d)(1), is incorporated herein
by reference in its entirety, and responses to each item herein are qualified
in their entirety by such reference.
ITEM 16. ADDITIONAL INFORMATION
The information contained in the Registration Statement is incorporated
herein by reference in its entirety.
1
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ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
Exhibit (a)(1) Not Applicable.
Exhibit (b)(1) Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), dated March 31, 1996, which
is attached as Appendix B-1 to the Solicitation
Statement/Prospectus that forms a part of the Registration
Statement filed as Exhibit (d)(1) hereto.
Exhibit (b)(2) Opinion of Lehman Brothers Inc. ("Lehman Brothers"), dated
March 31, 1996, which is attached as Appendix B-2 to the
Solicitation Statement/Prospectus that forms a part of the
Registration Statement filed as Exhibit (d)(1) hereto.
Exhibit (b)(3) Opinion of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), dated March 31, 1996, which is attached as
Appendix B-3 to the Solicitation Statement/Prospectus that
forms a part of the Registration Statement filed as Exhibit
(d)(1) hereto.
Exhibit (b)(4) Presentation to the General Motors Board of Directors
Regarding Split-Off of EDS, dated March 31, 1996, given by
Merrill Lynch.
Exhibit (b)(5) Presentation to the General Motors Board of Directors
Concerning the Split-Off of EDS, dated March 31, 1996, given by
Morgan Stanley and Lehman Brothers.
Exhibit (b)(6) Letter, dated August 2, 1995, from McKinsey & Company, Inc.
("McKinsey").
Exhibit (b)(7) Letter, dated March 1, 1996, from McKinsey.
Exhibit (b)(8) Report from McKinsey, dated August 23, 1995.
Exhibit (c)(1) Merger Agreement dated as of April 19, 1996 between General
Motors and GM Mergeco Corporation ("Mergeco"), which is
attached as Appendix A to the Solicitation Statement/
Prospectus that forms a part of the Registration Statement
filed as Exhibit (d)(1) hereto.
Exhibit (d)(1) Registration Statement.
Exhibit (e)(1) Not Applicable.
Exhibit (f)(1) Not Applicable.
2
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
1.Issuer and Class of Security
Subject to the Transaction
(a)............................ Introduction; Summary--General Motors
(b)............................ Introduction; Class E Common Stock--
Introduction; Solicitation of Written
Consent of General Motors Common
Stockholders
(c)............................ Class E Common Stock--Price Range and
Dividends
(d)............................ Risk Factors Regarding General Motors
after the Split-Off--Loss of Potential
Availability of EDS Funds and Assets;
Class E Common Stock--Price Range and
Dividends;--Dividend Policy;--
Considerations Relating to Multi-Class
Common Stock Capital Structure
(e)............................ Security Ownership of Certain Beneficial
Owners and Management of General Motors
and EDS--GM Hourly Plan Special Trust
(f)............................ See Annex 1 to this Transaction
Statement.
2.Identity and Background......... General Motors, the person filing this
Transaction Statement, is the issuer of
the class of equity securities which is
the subject of the Rule 13e-3
transaction.
(a)............................ The persons enumerated in General
Instruction C to Schedule 13E-3 (each,
an "Instruction C Person") are John F.
Smith, Jr., Anne L. Armstrong, John H.
Bryan, Thomas E. Everhart, Charles T.
Fisher, III, J. Willard Marriott, Jr.,
Ann D. McLaughlin, Harry J. Pearce,
Edmund T. Pratt, Jr., John G. Smale,
Louis W. Sullivan, Dennis Weatherstone,
Thomas H. Wyman, J. Michael Losh, G.
Richard Wagoner, Jr., Louis R. Hughes,
J.T. Battenberg, III and C. Michael
Armstrong.
(b)............................ See Annex 1 to this Transaction
Statement.
(c)............................ See Annex 1 to this Transaction
Statement.
(d)............................ See Annex 1 to this Transaction
Statement.
(e)............................ To the best of General Motors' knowledge,
during the past five years, no
Instruction C Person has been convicted
in a criminal proceeding (excluding
traffic violations or similar
misdemeanors).
(f)............................ To the best of General Motors' knowledge,
during the past five years, no
Instruction C Person has been party to a
civil proceeding of a judicial or
administrative body of competent
jurisdiction and as a result of such
proceeding was or is subject to a
judgment, decree or final order
enjoining further violations of, or
prohibiting activities subject to,
federal or state securities laws or
finding any violation of such laws.
(g)............................ Each Instruction C Person is a U.S.
citizen.
3.Past Contacts, Transactions or
Negotiations
(a)............................ Not Applicable
(b)............................ Incorporation of Certain Documents by
Reference; Special Factors--Background
of the Split-Off; Security Ownership of
Certain Beneficial Owners and Management
of General Motors and EDS--GM Hourly
Plan Special Trust
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
4.Terms of Transaction
(a)............................ The Split-Off; Relationship Between
General Motors and EDS--Post Split-Off
Arrangements; EDS Capital Stock
(b)............................ Not Applicable
5.Plans or Proposals of the Issuer
or Affiliate
(a)............................ Not Applicable
(b)............................ Not Applicable
(c)............................ Not Applicable
(d)............................ Not Applicable
(e)............................ Not Applicable
(f)............................ Not Applicable
(g)............................ Not Applicable
6.Source and Amounts of Funds or
Other Consideration
(a)............................ Estimated Fees and Expenses
(b)............................ Estimated Fees and Expenses
(c)............................ Not Applicable
(d)............................ Not Applicable
7.Purpose(s), Alternatives,
Reasons and Effects
(a)............................ Special Factors--Purposes of the Split-
Off
(b)............................ Special Factors--Alternatives to the
Split-Off
(c)............................ Special Factors--Alternatives to the
Split-Off;--Background of the Split-Off
(d)............................ Special Factors--Effects of the Split-
Off;--Certain U.S. Federal Income Tax
Considerations
8.Fairness of the Transaction
(a)............................ Special Factors--Recommendations of the
Capital Stock Committee and the GM
Board; Fairness of the Transactions;
The Split-Off
(b)............................ Special Factors--Recommendations of the
Capital Stock Committee and the GM
Board; Fairness of the Transactions
(c)............................ Special Factors--Requisite Vote for the
Transactions; The Split-Off--Merger
Agreement; Solicitation of Written
Consent of General Motors Common
Stockholders
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
(d)............................ Special Factors--Requisite Vote for the
Transactions
(e)............................ Special Factors--Recommendations of the
Capital Stock Committee and the GM
Board; Fairness of the Transactions; The
Split-Off
(f)............................ Not Applicable
9.Reports, Opinions, Appraisals
and Certain Negotiations
(a)............................ Special Factors--Background of the Split-
Off;--Fairness Opinions
(b)............................ Special Factors--Background of the Split-
Off;--Fairness Opinions
(c)............................ Special Factors--Background of the Split-
Off;--Fairness Opinions; Appendix B--
Fairness Opinions
10.Interest in Securities of the
Issuer
(a)............................ Security Ownership of Certain Beneficial
Owners and Management of General Motors
and EDS; See also Annex 1 to this
Transaction Statement.
(b)............................ See Annex 1 to this Transaction
Statement.
11.Contracts, Arrangements or
Understandings with Respect to
the Issuer's Securities....... The Split-Off--Merger Agreement
12.Present Intention and
Recommendation of Certain
Persons with Regard to the
Transaction
(a)............................ Solicitation of Written Consent of
General Motors Common Stockholders.
Other than as set forth in such section,
General Motors has not received any
notice of intent with respect to the
vote on the Split-Off from any person
enumerated in Item 12(a) of Schedule
13E-3.
(b)............................ Special Factors--Background of the Split-
Off;--Recommendations of the Capital
Stock Committee and the GM Board;
Fairness of the Transactions; The Split-
Off; Solicitation of Written Consent of
General Motors Common Stockholders.
Other than as set forth in such
sections, General Motors has not
received any notice that any person
enumerated in Item 12(a) of Schedule
13E-3 has made any recommendation with
respect to the Split-Off.
13.Other Provisions of the
Transaction
(a)............................ The Split-Off--No Appraisal Rights
(b)............................ Not Applicable
(c)............................ Not Applicable
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN SOLICITATION
SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS
-------------------------- -----------------------------------
<C> <S>
14.Financial Statements
(a)............................ Incorporation of Certain Documents By
Reference; Summary--Certain Per Share
and Other Financial Information--GM
Common Stock Historical Per Share Data;
--General Motors Ratios of Earnings to
Fixed Charges
(b)............................ Summary--Certain Per Share and Other
Financial Information--GM Common Stock
Pro Forma Per Share Data;--General
Motors Summary Consolidated Historical
and Pro Forma Financial Data; General
Motors Unaudited Pro Forma Condensed
Consolidated Financial Statements
15.Persons and Assets Employed,
Retained or Utilized
(a)............................ Special Factors--Background of the Split-
Off--Negotiating Teams; Solicitation of
Written Consent of General Motors Common
Stockholders
(b)............................ Solicitation of Written Consent of
General Motors Common Stockholders
16.Additional Information.......... The information contained in the
Registration Statement is incorporated
by reference herein in its entirety.
17.Material to be Filed as Exhibits
(a)............................ Not Applicable
(b)............................ Fairness opinions of each of Merrill
Lynch, Lehman Brothers and Morgan
Stanley, which are attached as Appendix
B-1, B-2 and B-3, respectively, to the
Solicitation Statement/Prospectus that
forms a part of the Registration
Statement filed as Exhibit (d)(1)
hereto; Presentations to the General
Motors Board of Directors given by (i)
Merrill Lynch and (ii) Lehman Brothers
and Morgan Stanley, which are filed as
Exhibits (b)(4) and (b)(5) hereto,
respectively; Letters to H. J. Pearce
from McKinsey, which are filed as
Exhibits (b)(6) and (b)(7) hereto;
Report from McKinsey, which is filed as
Exhibit (b)(8) hereto
(c)............................ Merger Agreement between General Motors
and Mergeco, which is attached as
Appendix A to the Solicitation
Statement/Prospectus that forms a part
of the Registration Statement filed as
Exhibit (d)(1) hereto
(d)............................ Registration Statement filed as Exhibit
(d)(1) hereto
(e)............................ Not Applicable
(f)............................ Not Applicable
</TABLE>
6
<PAGE>
ANNEX 1
ITEM 1(F). ISSUER AND CLASS
Since January 1, 1994, General Motors has purchased Class E Common Stock on
four occasions. On February 22, 1995, General Motors purchased 106,000 shares
of Class E Common Stock at a price of $38.3125 per share, which thereby
represented the average purchase price for Class E Common Stock purchased by
General Motors during the first quarter of 1995. On November 2, 1995, General
Motors purchased (i) 25,000 shares of Class E Common Stock at a price of
$48.9375 per share and (ii) 25,000 shares of Class E Common Stock at a price
of $48.3125 per share, resulting in an average purchase price of $48.625 per
share of Class E Common Stock purchased by General Motors during the third
quarter of 1995. On April 2, 1996, General Motors purchased 11,073 shares of
Class E Common Stock at a price of $53.1875 per share, which thereby
represents the average purchase price for Class E Common Stock purchased by
General Motors during the second quarter of 1996 through April 15, 1996.
ITEM 2(B) THROUGH (D). IDENTITY AND BACKGROUND
The following information with respect to principal occupation or employment
and name of the corporation or other organization in which such occupation or
employment is carried on and in regard to other affiliations has been
furnished to General Motors by the Instruction C Persons. In addition to the
affiliations mentioned on the following pages, the Instruction C Persons are
active in many local and national cultural, charitable, professional, and
trade organizations.
ANNE L. ARMSTRONG, P.O. Box 1358, Kingsville, Texas 78364; Chairman, Board
of Trustees, Center for Strategic and International Studies; former Chairman
of the President's Foreign Intelligence Advisory Board and former Ambassador
to Great Britain; Joined General Motors Board in 1977; Director of American
Express Company, Boise Cascade Corporation, Glaxo-Wellcome and Halliburton
Company; Member of the Council on Foreign Relations and Board of Overseers
Hoover Institution.
JOHN H. BRYAN, Sara Lee Corporation, Three First National Plaza, Chicago,
Illinois 60602-4260; Chairman and Chief Executive Officer, Sara Lee
Corporation, Chicago; Joined General Motors Board in 1993; Director of Amoco
Corporation, First Chicago NBD Corporation and its subsidiary, First National
Bank of Chicago; Member of The Business Roundtable and Vice Chairman of The
Business Council; Chairman of Catalyst; Trustee of the University of Chicago
and the Committee for Economic Development.
THOMAS E. EVERHART, California Institute of Technology, Parsons-Oates Hall
of Administration, 1201 East California Boulevard, Pasadena, California 91125;
President and Professor of Electrical Engineering and Applied Physics,
California Institute of Technology, Pasadena; Former Chancellor of University
of Illinois, Urbana-Champaign; Joined General Motors Board in 1989; Director
of Hewlett-Packard Corporation, Reveo, Inc., Corporation for National Research
Initiatives, Community Television of Southern California (KCET); Member of
National Academy of Engineering; Vice Chairman, Council on Competitiveness.
CHARLES T. FISHER, III, 100 Renaissance Center, Detroit, Michigan 48243;
Retired Chairman and President of NBD Bancorp, Inc. and its subsidiary NBD
Bank, N.A., 611 Woodward Avenue, Detroit, Michigan 48226-3408; Joined General
Motors Board in 1972; Director of Hughes Electronics Corporation, AMR
Corporation and its subsidiary American Airlines, Inc., First Chicago NBD
Corporation and its subsidiaries First National Bank of Chicago and NBD Bank
(Michigan).
J. WILLARD MARRIOTT, JR., Marriott International, Inc., One Marriott Drive,
Washington, D.C. 20058; Chairman, President and Chief Executive Officer,
Marriott International, Inc., Washington, D.C., since October 1993; Chairman,
President and Chief Executive Officer, Marriott Corporation (1985-1993);
Joined General Motors Board in 1989; Director of Host Marriott Corporation
(formerly Marriott Corporation), Host Marriott Services Corporation, Outboard
Marine Corporation, and the U.S.-Russia Business Council; Serves on Board of
Trustees of National Geographic Society, Georgetown University and the Mayo
Foundation; Member of The Business Council and The Business Roundtable.
7
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ANN D. MCLAUGHLIN, 4320 Garfield, N.W., Washington, D.C.; Former U.S.
Secretary of Labor (1987-1989); Vice Chairman, The Aspen Institute; President,
Federal City Council, Washington, D.C. (1990-1995); Joined General Motors
Board in 1990; Director of AMR Corporation and its subsidiary American
Airlines, Inc., Federal National Mortgage Association, Harman International
Industries, Host Marriott Corporation (formerly Marriott Corporation); Kellogg
Company, Nordstrom, Potomac Electric Power Company, Sedgwick Group plc, Union
Camp Corporation, and Vulcan Materials Company; Trustee of The Public Agenda
Foundation, The Conservation Fund and Rand; Board of Overseers, Wharton School
of Business, University of Pennsylvania.
HARRY J. PEARCE, General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan 48202-3091; Vice Chairman, General Motors Board since
January 1, 1996, and Executive Vice President, Electronic Data Systems
Corporation, Hughes Electronics Corporation, GM Locomotive Group EMD, Allison
Transmission Division and Corporate Affairs since 1994, Executive Vice
President and General Counsel (1992-1994), Vice President and General Counsel
(1987-1992); Joined General Motors in 1985 and its Board in 1996; Member of
The President's Council; Director of Hughes Electronics Corporation, Marriott
International, Inc.; Member, The Conference Board, Northwestern University
School of Law Visiting Committee, and Board of Visitors, United States Air
Force Academy; Trustee, Howard University.
EDMUND T. PRATT, JR., Astor Lane, Port Washington, New York 11050; Chairman
Emeritus and currently director of Pfizer Inc., 253 East 42nd Street, New
York, New York 10017; Joined General Motors Board in 1977; Director of Hughes
Electronics Corporation, Chase Manhattan Corporation and its subsidiary Chase
Manhattan Bank, N.A., International Paper Company, Minerals Technologies Inc.
and AEA Investors, Inc.; Member of The Business Council.
JOHN G. SMALE, The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio
45201-0599; Chairman of the Executive Committee of General Motors since
January 1, 1996, former Chairman, General Motors (November 2, 1992-December
31, 1995); Retired Chairman and Chief Executive of The Procter & Gamble
Company; Joined General Motors Board in 1982; Member of the Executive
Committee of The Business Council; Board of Governors, The Nature Conservancy;
Emeritus Trustee of Kenyon College.
JOHN F. SMITH, JR., General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan 48202-3091; Chairman, General Motors since January 1, 1996,
and Chief Executive Officer and President since November 2, 1992, President
(April-November 1992), Vice Chairman, Board of Directors (1990-1992),
Executive Vice President, International Operations (1988-1990); Joined General
Motors in 1961 and its Board in 1990; Member of The President's Council;
Director of Hughes Electronics Corporation, The Procter & Gamble Company;
Member of The Business Roundtable, The Business Council, U.S.-Japan Business
Council and the Chancellor's Executive Committee of the University of
Massachusetts; Member of Board of Overseers of Memorial Sloan-Kettering Cancer
Center and Member of Board of Polish-American Enterprise Fund.
LOUIS W. SULLIVAN, Morehouse School of Medicine, 720 Westview Drive, S.W.,
Atlanta, Georgia 30310-1495; President, Morehouse School of Medicine, Atlanta,
Georgia, since January 21, 1993; U.S. Secretary of Health and Human Services,
200 Independence, S.W., Washington, D.C. 20201 (1989-1993); Joined General
Motors Board in 1993; Director of Georgia Pacific, 3M Corporation, Household
International Inc., CIGNA Corporation, Bristol-Myers Squibb Company and
Equifax Corporation.
DENNIS WEATHERSTONE, J.P. Morgan & Co. Incorporated, 60 Wall Street, 21st
Floor, New York, New York 10260; Retired Chairman and currently director of
J.P. Morgan & Co. Incorporated and its subsidiary Morgan Guaranty Trust
Company of New York; Joined General Motors Board in 1986; Director of L'Air
Liquide, Merck & Co., Inc. and the Institute for International Economics;
Member of The Business Council; President and trustee of the Royal College of
Surgeons Foundation, Inc., New York; Trustee of the Alfred P. Sloan
Foundation; Independent member of the Board of Banking Supervision of the Bank
of England.
THOMAS H. WYMAN, S.G. Warburg & Co., Inc., 277 Park Avenue, New York, New
York 10172; Chairman, S.G. Warburg & Co. Inc., New York, and former Chairman,
President and Chief Executive Officer, CBS Inc.,
8
<PAGE>
New York; Joined General Motors Board in 1985; Director of Hughes Electronics
Corporation, AT&T, Zeneca Group PLC (London) and United Biscuits (Holdings)
plc (Edinburgh); Member of The Business Council; Trustee Emeritus of The Ford
Foundation and of The Aspen Institute; Chairman Emeritus of Amherst College.
C. MICHAEL ARMSTRONG, Hughes Electronics Corporation, 7200 Hughes Terrace,
Los Angeles, California 90045-0066; Chairman and Chief Executive Officer,
Hughes Electronics Corporation since March 1992; Senior Vice President,
International Business Machines Corporation, Old Orchard Road, Armonk, New
York 10504 (1989-March 1992); Member of the President's Council.
J. T. BATTENBERG, III, General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, General
Motors since July 1995 and President, Delphi Automotive Systems since July
1994, Senior Vice President (July 1994-July 1995), Vice President and Group
Executive in charge of the Automotive Components Group (May 1992-July 1994),
Vice President and Group Executive in charge of the Buick-Oldsmobile-Cadillac
Group (June 1988-May 1992); Associated with General Motors since 1961; Member
of the President's Council.
LOUIS R. HUGHES, General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan, 48202-3091; Executive Vice President, International
Operations, General Motors since November 1992 and President, International
Operations since September 1994, President, General Motors Europe and Vice
President and Group Executive (April-November 1992), Chairman and Managing
Director of Adam Opel AG (March 1989-April 1992); Associated with General
Motors since 1966; Member of the President's Council.
J. MICHAEL LOSH, General Motors Corporation, 3044 West Grand Boulevard,
Detroit, Michigan, 48202-3091; Executive Vice President and Chief Financial
Officer, General Motors since July 1994, Group Executive in charge of North
American Vehicle Sales, Service, and Marketing (May 1992-July 1994), Vice
President and General Manager of Oldsmobile Division (June 1989-May 1992);
Associated with General Motors since 1964; Member of the President's Council.
G. RICHARD WAGONER, JR., General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, General
Motors since November 1992 and President, North American Operations since July
1994, Chief Financial Officer (November 1992-July 1994), President and
Managing Director of General Motors do Brasil (July 1991-November 1992), Vice
President in charge of finance for General Motors Europe (June 1989-July
1991); Associated with General Motors since 1977; Member of the President's
Council.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
ITEM 10(A)
The following table sets forth, as of February 29, 1996, beneficial
ownership of Class E Common Stock for certain Instruction C Persons and
pension and profit-sharing or similar plans of General Motors (excluding its
subsidiaries). Ownership of less than one percent of the outstanding shares of
Class E Common Stock is indicated by an asterisk. Upon consummation of the
Split-Off, each outstanding share of Class E Common Stock will be
automatically converted into one share of EDS Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
BENEFICIAL OWNER OWNED CLASS
---------------- ------------ -------
<S> <C> <C>
J. T. Battenberg, III............................... 1,208 *
J. M. Losh.......................................... 5,659 *
General Motors Retirement Plan
for Salaried Employees............................. 7,295,169 1.5
General Motors Savings Plans Master Trust........... 14,760,025 3.0
General Motors Canadian Savings-Stock Purchase
Program............................................ 100,310 *
</TABLE>
9
<PAGE>
ITEM 10(B)
On various dates between February 9 and April 10, 1996, certain pension and
profit-sharing or similar plans of General Motors (excluding its subsidiaries)
effected multiple transactions in Class E Common Stock. During such period,
the General Motors Savings Plans Master Trust purchased an aggregate amount of
approximately 4.5 million shares of Class E Common Stock at prices ranging
from $53.75 to $56.595 per share and sold an aggregate amount of approximately
323,000 shares of Class E Common Stock at prices ranging from $53.188 to
$57.75 per share. The General Motors Canadian Savings-Stock Purchase Program
also purchased within such period an aggregate amount of approximately 8,200
shares of Class E Common Stock at an average price of $56.225 per share and
sold an aggregate amount of approximately 680 shares of Class E Common Stock
at an average price of $56.6801 per share. In addition, on February 21, 1996,
the General Motors Retirement Plan for Salaried Employees sold 15,800 shares
of Class E Common Stock at a price of $55.855 per share, and on February 23,
1996, the General Motors Hourly-Rate Employees Pension Plan sold 21,300 shares
of Class E Common Stock at the same per share price. Since April 10, 1996,
other transactions in Class E Common Stock may have been effected by certain
General Motors pension and profit-sharing or similar plans in the ordinary
course.
10
<PAGE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
General Motors Corporation
/s/ John F. Smith, Jr.
By: _________________________________
John F. Smith, Jr.
Chairman, Chief Executive Officer,
and President
Dated: April 29, 1996
II-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
(a)(1) Not Applicable.
(b)(1) Opinion of Merrill Lynch, dated March 31, 1996, which
is attached as Appendix B-1 to the Solicitation
Statement/Prospectus that forms a part of the Regis-
tration Statement filed as Exhibit (d)(1) hereto.*
(b)(2) Opinion of Lehman Brothers, dated March 31, 1996,
which is attached as Appendix B-2 to the Solicitation
Statement/Prospectus that forms a part of the Regis-
tration Statement filed as Exhibit (d)(1) hereto.*
(b)(3) Opinion of Morgan Stanley, dated March 31, 1996,
which is attached as Appendix B-3 to the Solicitation
Statement/Prospectus that forms a part of the Regis-
tration Statement filed as Exhibit (d)(1) hereto.*
(b)(4) Presentation to the General Motors Board of Directors
Regarding Split-Off of EDS, dated March 31, 1996,
given by Merrill Lynch.*
(b)(5) Presentation to the General Motors Board of Directors
concerning the Split-Off of EDS, dated March 31,
1996, given by Morgan Stanley and Lehman Brothers.*
(b)(6) Letter, dated August 2, 1995, from McKinsey.*
(b)(7) Letter, dated March 1, 1996, from McKinsey.*
(b)(8) Report from McKinsey dated August 23, 1995. (Filed
initially in paper format under cover of Form SE and
filed in an EDGAR version herewith; portions of which
have been granted confidential treatment pursuant to
an order of the Commission).**
(c)(1) Merger Agreement dated as of April 19, 1996 between
General Motors and Mergeco, which is attached as Ap-
pendix A to the Solicitation Statement/Prospectus
that forms a part of the Registration Statement filed
as Exhibit (d)(1) hereto.*
(d)(1) Registration Statement.*
(e)(1) Not Applicable.
(f)(1) Not Applicable.
</TABLE>
- --------
*Filed previously.
**Filed herewith.
<PAGE>
CONFIDENTIAL
Project Great Lakes
August 23, 1995
[Confidential information has been omitted.]
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
- -------------------------------------------------------------------------------
EXECUTIVE SUMMARY
General Motors' different businesses create business and capital conflicts that
are best resolved by a divestiture of EDS
1. Winning in the growing and attractive IT industry requires a broad range of
capabilities that cross traditional industry boundaries with a premium on
alliances and efficient deployment of capital to secure leadership positions
2. Competitors from various sectors are aggressively configuring to compete in
the IT services sector where they can rapidly become credible players
3. EDS and Hughes are both well positioned to succeed in the IT services
industry, each pursuing market from a distinctly different direction
4. The growing overlap of EDS' and Hughes' opportunities will inevitably
complicate problems inherent in the General Motors structure--problems
foreshadowed by recent conflicts
5. An EDS divestiture is the most effective alternative to address the conflict
and strategic overlap
1
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
CHAPTER
- ---------------------------------------------------------------------
1. Keys to leadership in the IT industry
2. Competitive overview
3. EDS and Hughes positioning
4. Growing overlap between EDS and Hughes
5. Alternatives to resolve conflict
2
<PAGE>
1 Keys to leadership in the IT industry
Winning in the growing and attractive IT industry will require a broad range of
capabilities that cross traditional boundaries with a premium on alliances and
efficient deployment of capital to secure leadership positions.
(P) The $2.2 trillion IT industry is undergoing significant structural
change, creating new value opportunities and rapid growth across a
much broader landscape.
(P) Capital and partnering flexibility will be critical in this new
environment to establish and sustain leadership positions.
(P) Winning players will have to be able to quickly discern emerging
opportunities in IT and possess or build the capabilities to deliver.
3
<PAGE>
SIGNIFICANT STRUCTURAL CHANGE IN THE IT INDUSTRY
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY MARKET FRAMEWORK WORKING DEFINITION
------------------
1994 revenue $ Billions
[Confidential information has been omitted]
Source: McKinsey IT Market Database -- see appendix for detailed source list
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
4A
<PAGE>
Information technology (IT) has evolved simultaneously in three distinct
industries. In media/entertainment, the mediums available have proliferated from
the printing press to a vast array of full video/audio alternatives. In
communications, the transport mechanisms have grown in utility from mail through
telegraph to a host of wireline and wireless technologies. Computers, likewise
have grown in capability and speed to offer functionality unimaginable only
decades ago.
In each of these industries, delivery of the end product requires a combination
of hardware, software, and services. In some cases these offerings are bundled
and provided by one industry player. In others, the offerings are sold
independently, or even created by the end user. For example, the software in
home video is created by the user. At any rate, each industry can be segmented
into its hardware, software, and services component.
In 1994, the market defined as providing hardware, software, and services in
computing, communications, and media/entertainment was approximately $2.2
trillion.
4B
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY MARKET SEGMENTATION EXAMPLES
--------
[Confidential information has been omitted]
Source: McKinsey analysis
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
5A
<PAGE>
Typically, players who launch innovative IT solutions initially bundle hardware,
software, and services. However, these integrated solutions become unbundled as
competitors begin to "cherry pick" discrete components of the solution's value
proposition or as powerful customers demand "open systems" architecture.
The "breakup" of IBM's business systems into discrete components is an example
of this "unbundling" over time; other players saw opportunities to deliver
stand-alone hardware, software, and service components at which they could
establish a unique value proposition.
5B
<PAGE>
- -------------------------------------------------------------------------------
DISCONTINUITIES CAUSING IT INDUSTRY CONVERGENCE
$ Billions
COMMUNICATIONS 683
Analog..................Digital
Copper..................Fiber
Wireline................Wireless/wireline
Regulated...............Open competition
Standard data...........Compressed data
transmission transmission
Synchronous.............Asynchronous
(circuit) (shared)
MEDIA/ENTERTAINMENT 660
One-way.................Two-way
Passive.................Interactive
Static..................Dynamic
Spectators..............Participants
Fixed...................Portable
Institutional...........Individual/
institutional
COMPUTING 869
Mainframe...............Micro
Sequential processing...Parallel
Magnetic storage........Optical
Hierarchical networks...Distributed
Procedural..............Object-oriented
Institutional...........Individual/
institutional
6A
<PAGE>
While the hardware, software, and service offerings are being unbundled, the
media/entertainment, communications and computing industries are converging. The
convergence is driven by multiple technological discontinuities moving
communications, computing, and media/entertainment toward similar end-user
functions: digital, networked, interactive, multimedia.
As the technology in these industries converges, new innovations in products and
services are generated that cross traditional boundaries. Creation of these
products and services are often driven by the realization of latent IT market
needs, for example voice mail services.
6B
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY MARKET SEGMENTATION WORKING DEFINITION
------------------
[Confidential information has been omitted]
Source: McKinsey IT Market Database
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
7A
<PAGE>
Over time, the historical industry definitions of media/entertainment,
communications, and computing are becoming less important, as the distinction
between their products and markets blur.
Today's most recognized symbol of this phenomena is the networked multimedia
computer. It has the traditional computing capabilities of the standard PC, the
communication utilities via modem or area network to transport information, and
the versatility to process and deliver media and entertainment in full video,
audio, and data formats.
The multimedia computer is but one of a host of examples illustrating the
convergence in media/entertainment, communications, and computing.
7B
<PAGE>
STRUCTURAL CHANGES CREATING VALUE OPPORTUNITIES
- -------------------------------------------------------------------------------
PROJECTED GROWTH IN CONVERGED IT PRODUCTS AND SERVICES EXAMPLES
--------
Revenue CAGR 1994-98, percent
[Confidential information has been omitted.]
Source: LINK resources; EDS Marketing projections; Dataquest; Veronis, Suhler, &
Associates; McKinsey wireless study
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
8A
<PAGE>
Products and services created to serve these latent needs by straddling the
historical definitions are experiencing disproportionate growth. Examples exist
in hardware, software, and services where extraordinary growth in the market for
"converged" products can be observed.
8B
<PAGE>
-------------------------------------------------------------------------------
GROWTH IN COMPETITORS WITH NETWORK CAPABILITIES [ ] Network-focused revenues**
Revenue, $ Millions*
Total Average size
number of of contract
contracts $ Millions
1991-92 445 5,512 53 $104
ISSC (IBM)
1993-94 3,110 11,200 46 243
1991-92
AT&T GIS 351 9 39
Professional
Services 1993-94 3,160 4,609*** 34 136
50
1991-92 226 3 75
Hughes
1993-94 613 5 123
119
9A
* For announced IT contracts signed during the period
** For example, large communications component in the contract (e.g.,
electronic commerce, EDI, field sales force automation)
*** Includes $2.8 billion contract with Delta
Source: EDS Marketing--contract tracking database; McKinsey analysis
<PAGE>
Another illustration of the value created by the convergence of traditional
computing and communications sectors is the increasing incorporation of network
capabilities by IT service providers in order to "win" large business contracts.
For example, in 1991-92, only 8% of ISSC's total revenues were network-centric.
By 1993-94, this proportion increased to 28%. Over the same time period, total
contract revenues grew 200%, whereas "network-centric" revenues grew 700%.
9B
<PAGE>
<TABLE>
<CAPTION>
REQUIREMENTS FOR SUCCESS IN NEW AND MATURE IT MARKETS
REQUIREMENTS FOR SUCCESS REQUIREMENTS FOR
IN MATURING PRODUCTS/ SUCCESSFUL NEW
OFFERING TYPE SERVICE MARKETS INNOVATIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Hardware . Low-cost/high-quality . Technical lead or
production close follower
. Efficient supply and . Close association
distribution chains with software or
service innovator
. Multiuse products (to . Access to
reach scale) distribution
. Moderate capital . Large capital
investment investment
Software . Market share/installed . Clear value add
base of developers and that overcomes/lowers
users customer switching
costs
. Rapid evolution/response . Creativity-ability
to visualize changing
customer needs
. Broad product line (to
"cover" emerging niches)
Services . Strong customer . Solutions mindset
relationships
. Systems design . Partnering/negotiating . Investment in new
and development flexibility markets/skills
. Systems . Continual integration . Understanding of
integration of new opportunities specific industry/specific
company needs
. Operations . Capital to update
operations infrastructure
</TABLE>
10A
<PAGE>
Unbundling is creating a business environment where very different skill sets
are required to sustain a competitive advantage in maturing hardware, software,
and services. Generally, success in innovation introduction requires an ability
to rapidly develop integrated "solutions" which preemptively meet some latent
market need; success in maturing markets requires vendors to leverage scale
advantages and customer/partner relationships to become the low cost/highest
value provider.
10B
<PAGE>
STRATEGIC IMPLICATIONS OF STRUCTURAL CHANGE
- -------------------------------------------------------------------------------
IMPLICATIONS OF CONVERGENCE AND PRODUCT/SERVICE UNBUNDLING
[Confidential information has been omitted.]
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
11A
<PAGE>
This discussion of the changing IT landscape has focused on two key trends--the
convergence across the traditional media/entertainment, communications, and
computing sectors, and the unbundling of hardware, software and services
components of IT innovations over time. These trends have key strategic
implications for competitive strategies in the IT landscape:
1. Unbundling of products/services: Players who introduce innovative
solutions should find opportunities either to excel at one or more of
the individual components to protect their value proposition once
unbundling has occurred, or to secure value in continually creating
alternative, innovative solutions.
2. Convergence across industries: Players within a specific traditional
industry sector should pursue "cross industry" offerings to leverage
their hardware-, software-, and/or service-specific capabilities.
11B
<PAGE>
- --------------------------------------------------------------------------------
STRATEGIC IMPERATIVES CREATED BY CHANGING ENVIRONMENT
ELEMENT OF NEW ENVIRONMENT STRATEGIC IMPERATIVE
------------------------------------------------------
Convergence Convergence of computing, Players must make
and communications, and acquisitions, form
unbundling media/entertainment is alliances, or develop
generating merger and broader skill sets to
alliance activity succeed
. Cable and Telecom for
local access services
. Systems integrators and
Telecom for IT services
. Software and media
companies for interactive
services
Unbundling of Players must offer a
product/service offerings distinct value
proposition in
hardware, software,
or services or
develop entirely new
offerings
Other Development of Global reach is a
major communications networks, requirement for large
changes global customers, and players seeking growth
global markets
IT services will need
Consumer and business to provide
distinction blurring; interactive
target market becomes the point-to-point
individual functionality
Nature and size of capital Capital flexibility
needs changing as will be required to
. New skills are required efficiently capture
. Strategic acquisitions high-value
are necessary opportunities
. Opportunities are
becoming more
decentralized
12A
<PAGE>
This convergence across traditional industry sectors and the unbundling of
product/service offerings are creating new demands on players in the changing IT
landscape.
In addition, large players must increasingly cater to "global" customers and
target the "individual" customer rather than traditionally defined consumers and
businesses.
These changes are forcing providers to invest heavily, partner strategically,
and build new skill sets. For EDS, this highlights the need to pursue a telecom
acquisition or partnership.
12B
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C>
CAPTURING INFORMATION TECHNOLOGY OPPORTUNITIES
Opportunities appear in industries where traditional New opportunities
functional boundaries are blurring, e.g., between
computers, communications, and media/entertainment
Players with a presence in these industries will have
insight into opportunities - there will be option value Vision
to being in the right markets
Of the players that identify opportunities, only
those able to leverage skills rapidly across Broad capabilities
functional boundaries, via ownership or alliance,
will be able to capture them
Opportunity captured by
competitor with breadth and vision
</TABLE>
13A
<PAGE>
To successfully capture the value opportunities created by the changes in the IT
landscape, players must possess the industry knowledge and insight to recognize
the opportunities, and must then be able to act quickly to build or acquire the
organizational capabilities required to successfully deliver against the
opportunity.
13B
<PAGE>
2 Competitive overview
Competitors from various sectors are aggressively configuring to compete in the
IT services sector where they can rapidly become credible players.
(P) The market for IT services is an attractive target for large
companies seeking growth opportunities.
(P) Many large companies are entering the IT services business from
adjacent industries in transition.
(P) Opportunities to acquire critical reach and scale quickly are being
captured by competitors.
(P) Successful players will deploy a broad range of capabilities to
capture as much of each customer's spending as possible.
14
<PAGE>
ATTRACTIVENESS OF IT SERVICES
- --------------------------------------------------------------------------------
ATTRACTIVENESS OF IT SERVICES FOR LARGE COMPANIES
Both software and services have attractive growth rates and returns relative to
hardware
Revenue growth in IT services, encompassing both operations and system design
and development, will invite competitors seeking growth opportunities
Whereas success in software businesses requires a long-term effort to gain a
critical mass of users and developers - in segments of services, competitors
quickly achieve scale and credibility necessary to win large contracts
15A
<PAGE>
The market for IT services is by far the largest component in the IT landscape
and is expected to continue growing at the fastest rate. Furthermore, players
offering IT services, on average, yield very attractive financial returns.
15B
<PAGE>
- --------------------------------------------------------------------------------
IT INDUSTRY SEGMENTS 1994-98 PROJECTED GROWTH RATE AND RETURNS
% CAGR, ROE WORKING DEFINITION
------------------
[Confidential information has been omitted.]
Source: Compustat; annual reports; McKinsey Electronics Practice Database
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
16A
<PAGE>
On average, companies in the software and services businesses are much more
attractive than companies in the hardware business, with returns on equity (ROE)
at 18.4 and 17.4 respectively as compared to hardware's ROE of 12.8.
16B
<PAGE>
- --------------------------------------------------------------------------------
IT INDUSTRY SEGMENTS 1994-98 PROJECTED TOTAL REVENUE GROWTH WORKING DEFINITION
$ Billions ------------------
[Confidential information has been omitted.]
Source: Compustat; annual reports; McKinsey Electronics Practice Database
17A
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
Significant growth is expected across the IT landscape, estimated at
$ [Confidential information has been omitted] billion in revenue over the next
four years. [Confidential information has been omitted] Large companies seeking
growth opportunities in the IT industry are likely to be attracted to offering
services.
17B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
- -------------------------------------------------------------------------------
GROWTH DRIVERS IN IT SERVICES
. Flatter, more dispersed organizations requiring real-time access to data
and networks of collaborators
. Increasingly powerful software and data in the hand of the users
. Plummeting cost of systems and communications hardware
. Development of global communications network that promises accessibility
to link all computing, media, and entertainment activities
- Disproportionately large spending in second and third world markets
to deploy telecommunications infrastructure
- Use of wireless, low-cost computing infrastructure, and outsourcing
to accelerate catch-up
18A
<PAGE>
The growth in the services offering type is driven mainly by companies' need to
maximize their ability to adopt new technology quickly without having to "write
off" an installed base. It is also driven by plummeting hardware costs, an
increasingly global infrastructure, and increasing requirements to serve "the
individual."
18B
<PAGE>
<TABLE>
<CAPTION>
NEW ENTRANTS FROM ADJACENT INDUSTRIES
DIVERSE SET OF COMPETITORS
TYPE EXAMPLES STRATEGY
- --------------------------------------------------------------------------------
<S> <C> <C>
Hardware manufacturers IBM, DEC, Olivetti . Enter the IT services
market to escape
commoditization of "core"
business
. Leverage large account
relationships
. Bundle hardware,
software, and services
Defense/aerospace Hughes, TRW, Boeing . Move to leverage in-house
data-center operations
and application
development skills
Telecom Nynex, AT&T, Sprint, . Focus on relationships
BT/MCI in the government
sectors
Large professional CSC, CDC . Focus only on IT
services firms services
. Concentrate
geographically and in
vertical sectors
Consulting firms Andersen, Coopers, . Leverage the business
Booz Allen Hamilton consultancy to offer IT
services
. Offer business as well
as IT expertise
Software firms Microsoft, Novell, . Leverage computing
Oracle platforms and
applications
</TABLE>
19A
<PAGE>
Many large companies are entering the IT services business from adjacent
industries in transition, such as computer hardware manufacturing and
defense/aerospace. These companies are essentially diversifying their portfolio
to protect against "downturns" or stagnant futures in their traditional
businesses by leveraging their core capabilities and customer relationships in
the services sector.
19B
<PAGE>
COMPETITORS CAPTURING SCALE AND REACH
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COMPETITORS ACHIEVING GROWTH WITH LARGE CONTRACTS
$ Billions, total contract revenue signed
<S> <C> <C>
CSC ISSC (IBM) AT&T GIS
- ----------------------------------- ------------------------------------------ -----------------------------------
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
9.5
7.6 General McDonnell
Dynamics $3.0 Douglas $3.0
Department of
3.7 Defense $0.7 6.0
3.6
United
3.9 Technologies
$3.0 2.8 Delta
1.1 $2.8
1.8 1.0
0.3 0.1 3.5 0.2
0.8
- --------------------- ----------------------- --------------------
1989 1990 1991 1990 1991 1992 1992 1993 1994
</TABLE>
Source: EDS Marketing; McKinsey analysis
20A
<PAGE>
Many new entrants are achieving scale and credibility in a shorter period of
time by winning a few large contracts. For example, ISSC (IBM) increased from
$1 billion in 1990 to over $7 billion in 1991, primarily due to a $3 billion
deal with McDonnell Douglass and a $3 billion deal with United Technologies.
20B
<PAGE>
- -------------------------------------------------------------------------------
REVENUE GROWTH FOR SELECTED IT SERVICE PROVIDERS
Ratio to 1989 performance
1994 revenue
Revenue ratios Competitor $ Billions
---------------------------------
3.5 | | ISSC (IBM) $9.7
| |
3.0 | |
| |
2.5 | |
| [GRAPH APPEARS HERE] | Andersen Consulting 3.5
1.5 | | CSC** 2.6
| | EDS 10.1
1.0 | | Cap Gemini Sogeti 2.1
| |
0.5 | |
| |
0 ---------------------------------
1989 1990 1991 1992 1993 1994
* 1994 revenue negatively impacted by the sale of IBM Federal Systems
** Fiscal year ends March 31; revenues for 1995 were $3.3 Billion
Source: EDS Marketing; Forbes; McKinsey analysis
21A
<PAGE>
Many competitors in IT services have experienced significant growth over the
last 5 years. For example, ISSC (IBM) has more than tripled in size.
21B
<PAGE>
- ------------------------------------------------------------------------------
GLOBAL PRESENCE OF SELECTED IT SERVICE PROVIDERS
1993 integration revenues
$ Millions
100%= 1,890 1,870 9,100 467 8,507 500 2,500
---------------------------------------------------------------
Percent North 9
America -------
49 66
------ ------- 75 77
Percent outside ------ ------ 85 90
North America 91 ----- -----
51
34
25 23 15 10
===============================================================
Cap Andersen IBM AT&T GIS EDS Hughes CSC
Gemini Consulting Services
Sogeti
[GRAPH APPEARS HERE]
Source: Directory of Systems and Network Integrators; McKinsey analysis
22A
<PAGE>
IT service providers are positioning for the global market, particularly Cap
Gemini Sogeti and Andersen Consulting, both of which obtain a significant
portion of their integration service revenues from outside of North America.
22B
<PAGE>
PLAYERS DEVELOPING BROAD CAPABILITIES
- -------------------------------------------------------------------------------
RATIONALE DRIVING BREADTH OF SERVICES
Growth in IT service operations is derived from capturing major new accounts
Once captured, the logical step for an account team is to bid on as much of the
service operations at that account as possible
As the general contractors for service operation, the service provider can
subcontract the low value elements, retain the high return businesses, and
maintain the option to provide all future services
23A
<PAGE>
In order to both obtain and leverage large customer relationships, IT service
providers (especially "operations" service providers) are attempting to deliver
as broad an offering as possible. They can then subcontract services which are
beyond their existing capabilities or which are low value.
23B
<PAGE>
- --------------------------------------------------------------------------------
STRATEGIC POSITIONING OF SELECTED IT SERVICES PLAYERS EXAMPLES
--------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
_________________________________________________________
| | |
| . DEC | . Andersen |
| . Hughes | . AT&T |
| . Loral | . Cap Gemini Sogeti | . Operating scale
| . Thomson-CSF | . CSC | . Multi-industry
Global | | . EDS | knowledge
| | . IBM |
| | |
| | |
| | |
Market | | |
focus __________________________________________________________
| | |
| . Boeing | . Olivetti |
| . Nynex | |
| . Smaller IT | |
| service providers | |
Local | . TRW | |
| | |
| | |
| | |
| | |
_________________________________________________________
Narrow Across the board
. Industry participation
. Service line breadth
Offering focus
</TABLE>
Source: McKinsey analysis
24A
<PAGE>
Accordingly, many IT service providers are expanding their existing
capabilities, moving from narrow to "across the board" offerings and from local
to global geographic focus.
24B
<PAGE>
- -------------------------------------------------------------------------------
SIGNIFICANT ALLIANCES FORMED BY IT COMPETITORS EXAMPLES
--------
Number of major alliances, January 1993 to present
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
34
|
|
|
Acquisition/merger | 15
| 20
| 1 17
| 15
Joint venture/alliance | 3
| 19 19 6
| 14
| 9
____________________________________________________
AT&T Andersen IBM CSC
Consulting
</TABLE>
Source: Press releases; McKinsey analysis
25A
<PAGE>
To obtain the skills necessary to succeed, key IT service providers have entered
into an increasing number of significant alliances.
25B
<PAGE>
- -------------------------------------------------------------------------------
WINNING IN IT SERVICES
KEY SUCCESS FACTORS IN IT SERVICES ORGANIZATIONAL REQUIREMENTS
- -------------------------------------------------------------------------------
. Breadth of service offerings . Active new business development
. Global reach . Strategic flexibility
. Strategic alliances . Access to debt and equity capital;
ability to pool
26A
<PAGE>
IT service players face "strategic imperatives" which are similar to success
requirements across the IT landscape (see p. 12). Accordingly, so that they may
leverage opportunities created by the convergence across industries, they must
maintain strategic flexibility and meet increased capital requirements.
26B
<PAGE>
3 EDS and Hughes'* positioning
EDS and Hughes are both well positioned to succeed in the IT services industry,
each pursuing the market from a distinctly different direction
(P) EDS has defined itself as the service leader in the IT industry, but
will have to extend its leadership position by expanding its service
breadth and organizational capabilities to succeed.
(P) Hughes has positioned itself to leverage its investments in
telecommunications, but must seek additional forums to capitalize on
its network capabilities and systems design skills in the commercial
and consumer services markets to succeed.
* This document's description of Hughes' business refers more to its growth in
IT services and less to its aspirations in defense and automotive
electronics
27
<PAGE>
EDS' POSITION
- --------------------------------------------------------------------------------
EDS' EVOLUTION
. EDS has evolved a breadth of service offerings and is successfully
penetrating key vertical markets
. EDS is gaining experience with critical emerging technologies
(e.g., client-server, wireless, object libraries, network management)
. EDS is building global presence
. EDS has experienced consistent growth in revenue, net income, and market
value
28A
<PAGE>
EDS has capitalized on unbundling and expanding the services dimensions of IBM's
legacy value proposition.
EDS has thereby defined itself as the service leader in the IT industry,
achieving a record of consistent superior performance. To sustain this
position, EDS must continue to pursue new markets (increased breadth, new
technological offerings, new geographical markets), while sustaining strong,
consistent financial performance.
28B
<PAGE>
- --------------------------------------------------------------------------------
EDS' POSITION IN VERTICAL IT MARKETS
EDS revenue
EDS services market* 1994 increases
Market $ Millions 1993-94
Percent
Financial 1,293 16.5
Manufacturing (excluding
services to General 1,136 32.0
Motors)
Communications 710 36.4
Insurance 472 0.1
Transportation 441 -1.5
Energy 392 8.8
Other commercial
services, and government 1,969 35.4
Total $6,413 17.1%
* Excludes significant portions of IT entertainment/media services
Source: EDS Internal Financial Reporting document
29A
<PAGE>
EDS has developed business units to deeply service industry-specific IT needs
and is penetrating key vertical markets. The growth in financial, nonautomotive
manufacturing, and communications positions EDS well in future growth
industries. EDS' growth in other commercial services indicates strength in its
strategy of multiple, market-focused groups and SBUs as a means to develop new
markets.
29B
<PAGE>
- --------------------------------------------------------------------------------
EDS' GLOBAL EXPANSION
Percent revenue growth 1993-94
1994 revenue*
$ Millions
Asia/Pacific 86 259
Non-U.S. Americas 81 256
Europe 34 1,304
United States 17 4,594
-----
6,413
Overall EDS revenue growth = 24
* Excludes General Motors revenue of $3,547 million
Source: EDS Finance
30A
<PAGE>
EDS is also pursuing non-U.S. markets with its industry and, especially, its
geographic groups and SBUs, as evidenced by its aggressive growth rates in key
emerging markets outside of the U.S. Although the U.S still accounts for 72% of
worldwide sales, other regions are growing disproportionately.
30B
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C>
EDS' FINANCIAL PERFORMANCE
EDS revenue and growth EDS relative stock performance vs. market
10 Revenues 2.0 EDS
8 1.6
S&P
6 [GRAPH APPEARS HERE] 1.2 [GRAPH APPEARS HERE] 500
4 0.8
2 0.4
Net profit
0 0
1990 1991 1992 1993 1994 1990 1991 1992 1993 1994
</TABLE>
Source: Value Line; annual reports; McKinsey analysis
31A
<PAGE>
EDS' investment in new markets has been accomplished thus far in a way that has
extended revenue and earnings growth. EDS has maintained strong financial
performance over the past five years; its revenues have increased from $6
billion in 1990 to $10 billion in 1994 (14% CAGR), and its stock price increased
from 19 5/6 to 38 3/8 at year end of 1990 and 1994 respectively.
31B
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
DISTRIBUTION OF P/E RATIOS FOR COMPANIES WITH $10 TO $15 BILLION REVENUE
Number of companies
<S> <C> <C> <C> <C> <C> <C> <C>
15
13
12
7
3
2
0
P/E ratios 0-4 4-8 8-12 12-16 16-20 20-24 24-28
Representative Anheueser
companies Volvo AB Sprint Busch Merck EDS Coca-Cola
</TABLE>
Source: Compustat; McKinsey analysis
32A
<PAGE>
EDS's market value of $22 billion incorporates the market's expectation that EDS
will continue to grow and successfully develop new, nontraditional markets. Its
price to earnings ratio is in line with progressive companies such as Merck,
Microsoft, and Coca-Cola, which are expected to expand in both product and
geographic markets.
32B
<PAGE>
EDS' BUSINESS MODEL
- --------------------------------------------------------------------------------
ILLUSTRATION OF EDS' BUSINESS MODEL ILLUSTRATIVE
Decentralized computing/communications applications ------------
[Confidential information has been omitted.]
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
33A
<PAGE>
EDS is facing significant changes in its environment as its traditional
"mainframe/data center facilities" represent a decreasing portion of total IT
needs, and as customer requirements increase in complexity to include
telecommunications and media/information.
EDS will need to leverage the convergence of the traditional IT major industry
sectors by developing capabilities beyond its traditional "computing services"
business. This means consummating strategic partnerships in the
telecommunications industry and acquiring capabilities complementary to EDS'
existing skill set, especially in the area of telecommunications/network
"intelligence," or software.
To do this successfully will require strategic flexibility, as well as capital
to form alliances/acquisitions as they become necessary.
33B
<PAGE>
- --------------------------------------------------------------------------------
INCREASED CAPITAL REQUIRED TO SUPPORT EDS' REVENUES
Cumulative invested capital
$ Billions Revenue dollar per total invested capital*
5 ______________________________ 6 ______________________________
| | | |
4 | | 5 | |
| | | |
3 | | 4 | |
| | | |
2 | [GRAPH APPEARS HERE] | 3 | [GRAPH APPEARS HERE] |
| | | |
1 | | 2 | |
| | | |
0 | | 1 | |
| | | |
______________________________ 0 ______________________________
1989 1990 1991 1992 1993 1994 1989 1990 1991 1992 1993 1994
* Cumulative capital (not capital invested that year)
Source: Annual reports; McKinsey analysis
34A
<PAGE>
EDS' traditional economic formula is changing as customers' requirements change.
In recent years, although cumulative invested capital has increased, each dollar
of invested capital is becoming less powerful in generating revenue. In other
words, EDS' capital intensity is increasing and is expected to continue along
this trend.
34B
<PAGE>
- --------------------------------------------------------------------------------
EDS RETURN ON INVESTED CAPITAL [ ] Value creation
Percent
Return on invested
capital (ROIC)
[Confidential information has been omitted.]
Weighted average cost
of capital (WACC)
1989 1990 1991 1992 1993 1994
Source: EDS annual reports; McKinsey analysis
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
35A
<PAGE>
As a result of increasing capital intensity, EDS value creation -- as measured
by return on invested capital (ROIC) minus the weighted average cost of capital
(WACC) -- has been declining significantly in the past five years. While the
most recent performance is still well in excess of the cost of capital, EDS will
need to increase the care it takes in evaluating deployment of increasing capi-
tal investment.
35B
<PAGE>
- --------------------------------------------------------------------------------
EDS CAPITAL REQUIREMENTS FOR NEW CONTRACTS
Percent of first full-period revenue
[Confidential information has been omitted.]
Total capital
Nonequity capital
Loan or equity capital
____________________________________________________
1989-91 1993-94*
contracts contracts
Contract Total revenue Contract Total revenue
[Confidential information has been omitted.]
* Analysis excludes fourth quarter of 1994
Source: EDS Finance; contracts database
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
36A
<PAGE>
EDS' high-growth, high margin opportunities are likely to be more asset
intensive than its typical 10-year systems management deals. Historically, major
up-front investment in only computing assets was required.
Today, not only is the up-front investment larger--reflecting the increasing IT
and telecom/network equipment installed base of virtually every sector--but the
contracts now require the deployment of new solutions--hardware, software, and
service infrastructure.
36B
<PAGE>
- --------------------------------------------------------------------------------
EDS' DEPLOYMENT OF TECHNICAL ASSETS
$ Millions CAGR
1990-94
Percent
[Confidential information has been omitted.]
Technical
asset invest-
ment moving
Nonleveraged to the "point
technical assets of attack"
Technical assets
in infrastructure
1990 1991 1992 1993 1994
Source: EDS Consulting
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
37A
<PAGE>
Today's client-server solutions contain significant hardware and software
resident at the local-area network. Therefore, EDS' deployment of technical
assets is trending away from centralized/leveraged technical assets in its
infrastructure toward nonleveraged assets for specific customers. This
transition requires that EDS develop new skills to effectively manage these
investments "at the point of attack."
37B
<PAGE>
- --------------------------------------------------------------------------------
EDS FINANCE COMMITTEE CAPITAL APPROVALS 1994
$ Millions () = Number of investments
approved
[ ] Decentralized investments
made at the business unit
level
1994 capital approvals
Total = [Confidential information has been omitted.]
Software and services
infrastructure [Confidential information has
been omitted.]
Facilities infrastructure [Confidential information has been
omitted.]
[Confidential information has been omitted.]
Joint ventures and
acquisitions [Confidential information has been omitted.]
Customer contract
support [Confidential
information
has been
omitted.]
[Confidential information has been omitted.]
Source: EDS Finance; McKinsey analysis
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
38A
<PAGE>
[Confidential information has been omitted]
38B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
EDS' STRATEGIC IMPERATIVE
EDS' objectives New business formula requirements
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
. Take advantage of the convergence of telecom Capital
and computing in delivering advantaged . Major investments will be required (e.g.,
integrated solutions acquisitions, distribution channels to consumer
markets), burdening the increased capital load
. Lead the transformation of large enterprise required to support the business
computing/communications by building
capabilities to drive toward enterprise client- . Many of these investments will be "at the point of
server attack" (rather than back-loaded infrastructure)
. Take the leadership role in enabling consumers' . Attracting and retaining scarce, high-talent
adoption of information age products and resources will become more critical, suggesting a
services higher reliance on strong performance
management systems and creative,
. Acquire and utilize information technologies and nontraditional incentives
processes to assist clients in optimizing
alignment of business objectives and technology Organization partnering
. EDS will need top tier partners in the right
industry sectors and segments
. EDS will need to add major new businesses to its
portfolio requiring significant investment
- Telecommunications
- Consulting
- Content/information services
</TABLE>
39A
<PAGE>
EDS has the opportunity to capture significant value in the changing IT
landscape by taking advantage of trends such as the convergence of telecom and
computing services, the emergence of client-server platforms, and the increasing
importance of the "individual" consumer. These objectives create new business
formula requirements, such as the need for an increasing level of capital,
creative incentive programs, and partnering capabilities.
39B
<PAGE>
HUGHES' POSITION
- -------------------------------------------------------------------------------
HUGHES' IT SERVICES EVOLUTION OUTSIDE DEFENSE
. Hughes is developing distinctive IT systems and related businesses that
are complemented by its network assets
. Hughes has reduced its dependence on government contracts
. Hughes has successfully transferred technology from its defense systems
businesses into commercial network systems and satellites
- Satellite construction and launch
- Digital communication technology (TDMA)
. Hughes has also experienced significant growth in revenue, net income,
and market value
40A
<PAGE>
Hughes has evolved away from its dependence on defense electronics by leveraging
its technical assets and system design/development know-how into other
commercial businesses. Hughes has maintained strong financial performance and is
positioning itself to sustain success within the IT landscape.
40B
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOTAL WORLDWIDE DEFENSE SPENDING
$ Billions
<S> <C> <C> <C> <C> <C> <C>
1,200 ----------------------------------------------------------------
| |
1,100 - |
| | -5.1% CAGR in
1,000 - | defense spending
| | 1989 to 1993
900 - [GRAPH APPEARS HERE] |
| |
800 - |
| |
0 | |
----------------------------------------------------------------
1989 1990 1991 1992 1993
Source: U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers; McKinsey analysis
</TABLE>
41A
<PAGE>
A significant external influence on Hughes' business is the decline in worldwide
defense spending. From 1989 to 1993, this spending decreased from $1,070 to $868
billion, a 5% annual decline.
41B
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
HUGHES' REVENUE BY MARKET SEGMENT [_] Focus of this document
$ Billions
<S> <C> <C> <C> <C> <C> <C> <C>
1991-94
CAGR
Percent
[GRAPH APPEARS HERE]
14.1 7
13.5
12.3
11.4 11.7 11.5 2.9 3.2 10
Other* 2.4 2.4 2.4 2.7
4.5 5.3 13
Automotive 3.5 3.8 3.7 4.0
Defense 5.5 5.5 5.5 5.5 6.1 5.6 1
-----------------------------------------------------------------
1989 1990 1991 1992 1993 1994
* Other includes telecommunications and space and commercial technologies
Source: Hughes Annual Report; McKinsey analysis
</TABLE>
42A
<PAGE>
Hughes has mitigated the impact of a reduction in defense spending by increasing
its focus on other segments, experiencing growth in telecommunications and space
segments in particular. Hughes' defense revenues as a percent of total revenues
declined from 48 percent in 1989 to 40 percent in 1994.
42B
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HUGHES' OVERVIEW [ ] Focus of this document
--------------- -------- --------------- ---------- -----------
Segment Telecommuni- DirecTV Network Systems Automotive Defense
cations & Space Electronics Electronics
--------------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Market/ . Satellite design and . Direct video/audio . Fixed wireless and . Driver systems . Missile systems
products construction broadcasting digital cellular (e.g., instrument . Airborne radar
. Satellite ownership . DirecPC digital communications panel) . Electro-optical systems
and operation satellite transmission . Wide area private . Power train . Surface and air defense
business networks (environmental, . Training and simulation
. Local area networks performance) . Guidance and control
. Telecommunications . Vehicle systems systems
equipment (safety)
Apparent . Share dominance . First-mover with . Share dominance . Growth
strategy (40% of commercial rapid growth (10 (70% share of private - Electronic content . Participate in
satellites) million subscribers business networks) per vehicle industry
. Invest in tight by 2000) - Geographic consolidation to
capacity market . Breakeven late 1996 presence grow share
- Non-General . "Invest or divest"
Motors market . Cost reduction
. Double digit cost . Expand
reduction international sales
-------------------------------------------------------------------------
1994 revenue* $2.5 $5.3 $5.6
$ Billions
Operating profit margin 10.8% 15.2% 12.3%
Percent (including losses in DirecTV)
1990-94 CAGR 11.6% 8.9% 0.2%
Percent
* The Commercial Technologies Group, with 1994 losses of $114 million on sales of $713 million, has been reorganized;
businesses are now under Telecommunications & Space and Defense Electronics
Source: Hughes Annual Report
</TABLE>
43A
<PAGE>
Hughes has developed high growth businesses such as DirecTV which leverage its
network assets. These opportunity areas help insulate Hughes against potential
downturns in its core businesses, such as defense and automotive electronics.
43B
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
HUGHES' FINANCIAL PERFORMANCE
Hughes revenue and profit growth Hughes stock performance vs. market
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 ---------------------------------------- 2.5 ----------------------------------------
Revenues
2.0 - Hughes
10 - [GRAPH APPEARS HERE] 1.5 - [GRAPH APPEARS HERE] S&P
1.0 -
5 - 0.5 -
Net profit
0 ---------------------------------------- 0 ----------------------------------------
1990 1991 1992 1993 1994 1990 1991 1992 1993 1994
Source: Value Line; annual reports; McKinsey analysis
</TABLE>
44A
<PAGE>
Hughes has maintained strong financial performance over the past 5 years, with
an increase in revenues from $11.7 billion in 1990 to $14.1 billion in 1994 and
a net profit margin increase from 6.1 percent in 1990 to 7.7 percent in 1994.
44B
<PAGE>
HUGHES' BUSINESS MODEL
- --------------------------------------------------------------------------------
ILLUSTRATION OF HUGHES' BUSINESS MODEL EVOLUTION DIRECTV/DIRECPC EXAMPLE
Commercial communications applications -----------------------
[Confidential information has been omitted.]
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
45A
<PAGE>
Hughes will need to continue to leverage its strengths in specific technologies
to design and develop new applications for the commercial segment. Increases in
capital spending and formation of alliances in new industries will likely be
required.
45B
<PAGE>
- -------------------------------------------------------------------------------
HUGHES' EVOLVING STRATEGY
Moving beyond the defense industry...
"For [Hughes], the challenge became refocusing the company from traditional
defense markets to a more commercial orientation." General Motors 1993 Annual
Report
"We [Hughes] cannot downsize our way to market leadership, nor can we borrow our
way to growth. We are responding to changes around the world...by exploring new
commercial applications of our technologies without abandoning our base in the
defense industry." Hughes 1993 Annual Report
...broadening the scope of business
"What we are creating is a global information network". Chairman and CEO,
[Hughes] Forbes, August 1, 1994
For more than a quarter of a century, [Hughes] has invested in building the
resources and expertise required to design, develop, and operate efficient and
effective large-scale information systems." Hughes Department of Defense
proposal
"We [Hughes] intend to make this new company a growth company through prudent
acquisitions, intelligent investment in new product development, and changes in
our cost structure and approach to business." Hughes' Defense Systems
Source: Annual reports; public literature
46A
<PAGE>
Hughes is realizing its challenge in reducing its dependence on defense spending
and government contracts and has acknowledged the need to broaden the scope of
its business. This entails not only a rethinking of the traditional business in
defense and automotive electronics, but also a more proactive positioning of
Hughes as a global information system solutions provider.
46B
<PAGE>
- -------------------------------------------------------------------------------
HUGHES' SERVICE EXPANSION
Hughes has invested over $2 billion in telecommunications and space since 1987.
The heavy investment will continue -- another $600 million for mobile cellular
services, $600 million for a new data transmission service, and $1 billion for
additional satellites to serve TV. Forbes, August 1, 1994
"[Hughes] is also steadily progressing in developing its business in
satellite-based private business networks, digital cellular communications, and
fixed wireless communications." 1993 General Motors Annual Report
Source: Annual reports; Forbes
47A
<PAGE>
Currently, Hughes dominates the commercial satellite business, having built 40
percent of the commercial satellites in service and providing 30 percent of the
world's commercial satellite service needs, and is aggressively pursuing other
wireless services.
47B
<PAGE>
- -------------------------------------------------------------------------------
HUGHES' LIKELY TARGET MARKETS* EXAMPLES
--------
[Confidential information has been omitted.]
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
48A
<PAGE>
[Confidential information has been omitted]
48B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
- --------------------------------------------------------------------------------
HUGHES' EARLY COMMERCIAL MARKET INITIATIVES*
Transportation
"Hughes Airport Systems is...dedicated to providing integrated systems
solutions for cost effective airport modernizations." Hughes 'Airport
Systems' brochure, July 1993
"Hughes Airport Systems offers technical solutions that are tailored to the
unique business needs of each airport customer." Hughes 'Airport Systems'
brochure, July 1993
"Hughes Airport Systems offers complete systems engineering and consulting
services, from preliminary studies, concept definition, and master plans
through systems integration and verification." Hughes 'Airport Systems'
brochure, July 1993
Health care**
Hughes, a world leader in providing advanced telecommunication and large
scale information systems, is applying its expertise to deploy the
information infrastructure required to support the rapidly changing
healthcare industry." Hughes Press Release, September 21, 1994
* Outside defense and automotive electronics
** As of June 1995, Hughes planned not to pursue the current state of
health care opportunities at this time
Source: Press release; Hughes brochures
49A
<PAGE>
[Confidential information has been omitted]
49B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CAPITAL NEEDS FOR HUGHES' COMMUNICATIONS BUSINESSES* - 1995 THROUGH 1999
$ Millions
[Confidential information has been omitted.]
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
DirecTV Mobile Satellite Fixed Total Other
cellular services telephone/ investment strategic
(HCI) data initiatives
transmission (e.g.,
Spaceway,
International
DBS)
* Excludes capital needs for the defense and automotive electronics businesses
Source: Hughes Financial Planning
</TABLE>
50A
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
As Hughes pursues strategic market development initiatives, major investments to
build capabilities and advanced solutions will likely be required. There are
early indications that Hughes' capital required to realize these new business
opportunities will be substantial.
50B
<PAGE>
- -------------------------------------------------------------------------------
HUGHES' STRATEGIC IMPERATIVE*
Hughes' apparent objectives New business formula requirements
- ------------------------------------------ ---------------------------------
[Confidential information has been omitted.]
*Outside defense and automotive electronics
Source: McKinsey analysis of published information
51A
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
[Confidential information has been omitted]
51B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
4 Growing overlap between EDS and Hughes
As EDS and Hughes pursue their respective strategies, their growing overlap will
inevitably complicate problems inherent in the General Motors structure -
problems foreshadowed by recent conflicts.
(P) Overlaps between EDS and Hughes are emerging and will likely grow as
the companies and the competitive landscape evolve.
(P) EDS' and Hughes' formal affiliation within the General Motors
structure will adversely affect business development, limiting
partnering and customer opportunities in particular.
(P) EDS and Hughes may also encounter handicaps in deploying significant
capital investment at the business unit level.
(P) The General Motors ownership structure complicates resolution of the
overlaps.
52
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF KEY AREAS OF CONCERN
Concern Description
- ------------------------------------------------------------- ---------------------------------------------------------------
<S> <C>
Effects of EDS and Hughes affiliation on business development
. Customer conflicts . EDS (and in the future, potentially, Hughes) cannot form
relationships with some key customers because of perceived
conflict between the customer and the other businesses
within the General Motors structure
. Partnering conflicts (business conflicts) . EDS and Hughes are disadvantaged in forming relationships
with strategic partners because of perceived conflict
between the customer and the other business within the
General Motors structure
. Bidding restrictions . EDS and Hughes may earn lower returns in potential contracts
due to their affiliation, e.g.
- Customers may allow only one bid per corporate entity
- Customer policies sometimes prohibit fee-on-fee contracts
within one corporate entity
Effects of ownership structure on capital deployment
. Obstructed strategic transactions . Inability to consummate major mergers because of potential
partner's unwillingness to accept letter stock
. Interference in the timing of negotiations/disclosures
because of capital activities of General Motors
. Impeded capital-related decision processes . Inherent delays or neglect in review processes of large
numbers of capital requests with decentralized business
cases
. Friction with General Motors in implementing stock-based
incentives plan supportive of effectively managing SBU-level
capital investment
</TABLE>
53A
<PAGE>
EDS' and Hughes' evolving strategies, as well as some case examples in recent
history, are introducing conflicts which are inherent in their affiliation
within the General Motors structure. These problems are focused around two key
areas of concern:
1. Negative impact of Hughes and EDS affiliation on business development,
specifically, each company's ability to effectively attract customers,
consummate partnerships, and bid for contracts.
2. Negative impact of General Motors ownership structure on capital
deployment, specifically, the impact of General Motors ownership on
alliance/acquisition attractiveness and flexibility, and the potential
for impeded capital-related decisions (e.g., incentive plans, capital
requests).
53B
<PAGE>
OVERLAP EMERGING
- --------------------------------------------------------------------------------
EXAMPLE OF OVERLAP IN EDS' AND HUGHES' BUSINESS MODELS
[Confidential information has been omitted.]
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
54A
<PAGE>
As EDS attempts to exploit the industry convergence of IT services and Hughes
attempts to leverage its network assets and capabilities to introduce
"innovative solutions" which integrate hardware, software, and services, it is
likely that they will overlap and compete in certain markets.
54B
<PAGE>
- --------------------------------------------------------------------------------
RATIONALE FOR CUSTOMER/PARTNER CONCERNS ABOUT EDS/HUGHES
. Customers perceive management involvement across General Motors'
companies
. Customers perceive that supporting EDS provides financial support to
Hughes and General Motors
. Relationship with EDS, and therefore General Motors and Hughes, means
giving EDS full access to company data - that is at the center of the
customers' knowledge base and economic lifeline
- Customer lists/customer information
- Financial/performance data
- Technology strategies
. Potential customers who are competitors of General Motors do not want to
signal dependence on a rival to the market
Source: Interviews; IT practice experience
55A
<PAGE>
It is logical that competitors of General Motors and Hughes would seek
alternatives to EDS as a service provider or partner. Business with a General
Motors' company is perceived as conflicting with the strategic and financial
interests of these companies.
55B
<PAGE>
- --------------------------------------------------------------------------------
EDS PERCEPTION OF POTENTIAL COMPETITIVE OVERLAP [_] EDS
[_] Hughes
[_] EDS/Hughes
[CHART APPEARS HERE]
[Confidential information has been omitted.]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer/Individual Business
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial services | Electronic funds transfer EDI
|
Manufacturing/retail | Smart cards Information processing
|
| Kiosks
|
Insurance/health care | PC consumer transactions Video conferencing
|
Government | PC/TV consumer information systems Artificial intelligence
|
Transportation | Electronic tracking (e.g., vehicle location) Decision support
|
Communications | Interactive PC CAD/CAM
|
Energy/utilities | Interactive TV/video Robotics
|
| Simulation
|
| Data mining
|
| Electronic tracking (e.g., virtual inventory)
|
| Imaging
|
| Civil engineering services
|
| Satellite launches
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: EDS Marketing
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
56A
<PAGE>
According to the perspective of EDS' management, EDS and Hughes will be
overlapping in multiple markets. As each penetrates vertical markets, the
likelihood of conflict over certain customer accounts increases.
56B
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ILLUSTRATION OF EDS AND HUGHES COMPETITION ILLUSTRATIVE EXAMPLE
Hotel reservation systems value chain -----------------------
[X] EDS customers threatened
by development of direct to
home reservation system
<S> <C>
EDS service offering Potential Hughes service offering
Third-party systems
EDS systems development development
and management
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
Hughes satellite
information exchange and
[X] IXC information exchange systems management
[X] Hotel consortium
[X] System operator
[X] Travel agent End-user (by DirecPC)
End-user (by phone)
</TABLE>
57A
<PAGE>
The fact that EDS and Hughes are competing in a number of the same market
spaces, and even for specific contracts, is not inherently negative. Many
companies have effectively handled the confusion or suspicion that customers may
feel when they are confronted with two affiliated companies who compete in the
same market space. However, major complications arise when EDS and Hughes -
both seen as part of the General Motors family - attempt to serve different
players within the same value chain, or when they attempt to serve different
value chains entirely.
Hughes' direct-to-customer satellite-based communications offerings could
threaten many of EDS' primary target customers and partners who are playing the
intermediary role and/or have significant investment in land-line based
solutions. One example of the latter is in hotel reservation systems.
57B
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CUSTOMER CONFLICTS [Confidential information has been omitted.] CASE EXAMPLE
------------
<S> <C>
OPPORTUNITY
[Confidential information has been omitted.]
SEQUENCE OF EVENTS
[Confidential information has been omitted.]
Potential impact
[Confidential information has been omitted.]
COMPETITIVE OVERLAP AND STRATEGIC IMPACT
[Confidential information has been omitted.]
Source: EDS Personal Communications Division
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
58A
<PAGE>
[Confidential information has been omitted]
58B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE TELECOMMUNICATIONS CONFLICT [ ] Hughes hardware or
service market
<S> <C> <C>
[GRAPH APPEARS HERE]
Cellular Other phones
phones and fax
------------------------------------------------------------------------
Access devices PC TV Stereo
------------------------------------------------------------------------
EDS needs to partner with
major players in key areas of
Wireless Bypass Private line DBS* telecommunications
------------------------------------------------------------------------
Hughes competes in key
Local loop service Local exchange carriers CATV segments of the
telecommunications industry
------------------------------------------------------------------------
Independent
satellite services Hughes offers high value
------------------------------------------------------------------------ communications services to
Long distance relatively small niches
service IXCs
------------------------------------------------------------------------
* DBS (Direct Broadcast Satellites), although not purely local services, compete for local service
</TABLE>
59A
<PAGE>
To leverage the convergence across IT services, EDS needs to partner with major
players in key areas of telecommunications. Because Hughes competes in segments
of the telecommunications industry, some parties are not interested in
partnering with EDS. However, Hughes possesses only niche wireless capabilities
(via network communications).
59B
<PAGE>
- -------------------------------------------------------------------------------
HUGHES' ABILITY TO SATISFY EDS' TELECOMMUNICATIONS NEEDS [ ] Currently served
$ Millions per year by Hughes
($[Confidential
information has
been omitted.]
million/year
[Confidential information has been omitted.]
Function
Rationale
Source: Interviews
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
60A
<PAGE>
Hughes' niche capabilities, as strong as they are, would satisfy only a fraction
of the growing telecommunications needs of EDS' lines of business. Essentially,
a merger with Hughes would block EDS from pursuing one of its key strategic
imperatives.
60B
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PARTNERING CONFLICTS [Confidential information has been omitted] CASE EXAMPLE
--------------
<S> <C>
Opportunity
[Confidential information has been omitted]
Potential impact
Sequence of events
[Confidential information has been omitted] [Confidential information
has been omitted]
Competitive overlap and strategic impact
[Confidential information has been omitted]
Source: EDS Personal Communications Division
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
61A
<PAGE>
[Confidential information has been omitted]
61B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CUSTOMER CONFLICTS [Confidential information has been omitted] CASE EXAMPLE
--------------
<S> <C>
Opportunity
[Confidential information has been omitted]
Sequence of events
Potential impact
[Confidential information has been omitted] [Confidential information
has been omitted]
Competitive overlap and strategic impact
[Confidential information has been omitted]
Source: EDS Personal Communications Division
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
62A
<PAGE>
[Confidential information has been omitted]
62B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BIDDING RESTRICTIONS [Confidential information has been omitted] CASE EXAMPLE
--------------
<S> <C>
Opportunity
[Confidential information has been omitted]
Sequence of events
[Confidential information has been omitted] Potential impact
[Confidential information
has been omitted].
Competitive overlap and strategic impact
[Confidential information has been omitted]
Source: EDS Government Services
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
63A
<PAGE>
The [Confidential information has been omitted] illustrates a different
competitive impediment which results from EDS' and Hughes' affiliation. Because
the government prevents "fee-on-fee" pricing (corporate affiliates putting a
mark-up on a single entity's costs twice), the primary bidder in this case would
be unable to obtain a profit by subcontracting with the other affiliate.
However, it would be able to include a profit on any other subcontracting
company, thus hindering the affiliate's flexibility in cooperating on this
project.
63B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BIDDING RESTRICTIONS [Confidential information has been omitted.] CASE EXAMPLE
------------
<S> <C>
Opportunity
[Confidential information has been omitted.]
Sequence of events Potential impact
[Confidential information
has been omitted.]
[Confidential information has been omitted.]
Competitive overlap and strategic impact
[Confidential information has been omitted.]
Source: EDS Military Systems
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
64A
<PAGE>
A similar deterrent is illustrated in the [Confidential information has been
omitted] example. Because the government limits the number of bids
which a company is allowed to make on a specific project, EDS and Hughes are
disadvantaged. Two contracts were to be awarded, under the condition that no
more than two bids be submitted by the same company.
In this case, EDS obtained a special exemption to have EDS and Hughes viewed as
separate companies. However, this illustrates the point that in future
contracts, one of the two companies may be excluded due to the other's
participation.
64B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[Confidential information has been omitted.] CASE EXAMPLE
------------
<S> <C>
Opportunity
[Confidential information has been omitted.]
Sequence of events
[Confidential information has been omitted.]
Competitive overlap and strategic impact
[Confidential information has been omitted.]
* By June 1995, Hughes planned not to pursue [confidential information has been omitted] market opportunities at this time
Source: EDS Healthcare SBU
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
65A
<PAGE>
[Confidential information has been omitted]
[Confidential information has been omitted]
The strategic issues associated with this emerging market niche opportunity
center on both the economics of competing bidding efforts and lost profits for
one of the players as well as the lost opportunities for EDS to gain
capabilities to leverage in future markets (even more important now that Hughes
has de-emphasized its [Confidential information has been omitted] industry
activities).
65B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
POTENTIAL COMPETITION BETWEEN EDS AND HUGHES ESTIMATE
----------
$ Millions, new EDS contract revenues in 1994*
[ ] Contracts for which
Hughes could have
been a viable
competitor
[Confidential information has been omitted.]
Estimates of future
contract overlap by
both companies are
in the multibillion
dollar range
- --------------------------------------------------------------------------------------------
Manufac- International State and Communi- Transpor- Finance
turing local cations tation
government**
* Excludes contract revenues gained through acquisitions or joint ventures
** Includes healthcare contracts (e.g., Medicaid)
Source: EDS contract database; McKinsey analysis
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
66A
<PAGE>
As the companies become more ambitious in new markets, they may find even more
overlap. For example, in 1994 alone, contracts amounting to approximately
$ [Confidential information has been omitted] in total revenue for EDS--
[Confidential information has been omitted] % of the value of contracts won by
EDS--were in market segments in which Hughes could potentially be a viable
competitor (as it pursues opportunities to leverage its skills in current and
"new" markets).
The potential contract overlaps are early signs that Hughes and EDS will more
frequently be servicing the same markets.
66B
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
<PAGE>
- -------------------------------------------------------------------------------
EDS CUSTOMER CONFLICTS IN AUTOMOTIVE
<TABLE>
<CAPTION>
MARKET KNOWN CONFLICTS*
- --------------------------------------------------------------------------------
<S> <C>
The automotive industry | [Confidential information has been omitted.]
spends $39 billion per |
year on IT. This |
includes parts supplies |
and others who affiliate|
with major automotive |
companies |
|
|
|
|
|
|
|
|
|
|
|
|
</TABLE>
* Conflicts are not always transparent due to the fact that:
1) customers are not always explicit with their reservations; and 2) as
a general rule, prospects are given lower priority by EDS in the sales
and marketing process if the threat of competition from Hughes or
General Motors is expected to negatively impact EDS's chance of winning
business
Source: EDS MIG SBU; EDS FIG SBU; "DP Budget"--April 1994
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
67A
<PAGE>
EDS' affiliation with General Motors and Hughes limits EDS' options in providing
IT services to the automotive industry. Many potential customers compete
directly with General Motors or are in some way aligned with General Motors'
competitors.
67B
<PAGE>
- -------------------------------------------------------------------------------
EDS CUSTOMER CONFLICTS IN AEROSPACE
<TABLE>
<CAPTION>
MARKET KNOWN CONFLICTS*
- --------------------------------------------------------------------------------
<S> <C>
The aerospace industry | [Confidential information has been omitted.]
spends $7 billion on IT |
per year |
|
|
|
|
|
|
|
</TABLE>
* Conflicts are not always transparent due to the fact that:
1) customers are not always explicit with their reservations; and 2) as
a general rule, prospects are disqualified in the EDS sales and
marketing process if the threat of competition from Hughes or General
Motors is expected to negatively impact EDS's chance of winning
business
Source: EDS MIG SBU; EDS FIG SBU; "DP Budget"--April 1994
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
68A
<PAGE>
Similarly, EDS has lost business in the aerospace industry due to its
affiliation with General Motors.
68B
<PAGE>
- -------------------------------------------------------------------------------
EDS CUSTOMER CONFLICTS IN FINANCIAL MARKETS
<TABLE>
<CAPTION>
MARKET KNOWN CONFLICTS*
- --------------------------------------------------------------------------------
<S> <C>
The consumer/commercial
financial services market
currently spends $3
billion annually on IT
services. This is [Confidential information has been omitted.]
expected to grow rapidly
as new services are
offered
</TABLE>
* Conflicts are not always transparent due to the fact that: 1) customers
are not always explicit with their reservations; and 2) as a general
rule, prospects are disqualified in the EDS sales and marketing process
if the threat of competition from Hughes or General Motors is expected
to negatively impact EDS's chance of winning business
Source: EDS MIG SBU; EDS FIG SBU; "DP Budget"--April 1994
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
69A
<PAGE>
EDS customer conflicts in financial services have been limited to date. However,
this market is an attractive market and is expected to grow rapidly.
69B
<PAGE>
CAPITAL AND STRATEGY DEPLOYMENT HANDICAPS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
EDS' STRATEGIC BARRIERS CASE EXAMPLE
--------------------
POTENTIAL
STRATEGIC PARTNER OPPORTUNITY COMPLICATION
- ---------------------------------------------------------------------------------------------------------
EDS has been
unable to
participate in
critical strategic
alliances
[Confidential information has been omitted.]
. This pattern will
likely continue if
there is no change
in ownership
structure
</TABLE>
Confidential treatment has been requested by General Motors for the indicated
portions of this page.
70A
<PAGE>
The second type of conflict which EDS and Hughes experience because of their
relationship within the General Motors structure concerns effective capital
deployment and strategic flexibility. In recent history, EDS has been unable to
consummate major mergers, including strategically important telecom alliances,
due to potential partners' unwillingness to accept Class E stock and General
Motors' inability or unwillingness to finance because of impact on their pooled
balance sheet. This pattern is expected to continue unless there are changes in
EDS' ownership structure.
70B
<PAGE>
OWNERSHIP STRUCTURE COMPLICATIONS
- -------------------------------------------------------------------------------
STOCK OWNERSHIP VALUE AND VOTING RIGHTS
Percent
MARKET CAPITALIZATION VOTING RIGHTS
Total = $67 billion Total = 1.03 billion votes
[GRAPH APPEARS HERE]
Class H shareholders 25% DOES Class H shareholders 4%
Class E shareholders 31% NOT Class E shareholders 10%
$1 2/3 shareholders 44% EQUAL $1 2/3 shareholders 86%
Source: Company annual reports; Wall Street Journal; McKinsey analysis
71A
<PAGE>
Not only are EDS and Hughes facing challenges because of their ownership
structure; General Motors may find itself in a precarious position concerning
capital deployment decisions. Regardless of market valuations of the three
shareholder positions, General Motors is in the position to allocate capital and
implicitly or explicitly define market strategies for each of its subsidiaries.
Any attempts by General Motors to direct business to one of its companies over
another raises questions about its fiduciary and financial incentives.
Capital allocation decisions may be conflicted, a problem that would be
aggravated if capital becomes scarce.
71B
<PAGE>
5 Alternatives to resolve conflict
An EDS divestiture is the most effective alternative to address the conflict and
strategic overlap.
(P) ALLOWING THE CONFLICTING BUSINESSES TO CONTINUE TO OPERATE UNRESTRAINED
WITHIN THE CURRENT GENERAL MOTORS STRUCTURE will result in increasing
destructive overlap.
(P) DEFINING RULES FOR WHERE AND HOW THE BUSINESSES WILL COMPETE is a complex
solution, requiring continuous oversight and raising serious conflict of
interest issues.
(P) MERGING THE OVERLAPPING BUSINESSES intensifies customer conflicts,
further blocks EDS' access to key telecommunications capabilities, and
could limit the Hughes businesses links to new technology.
(P) DIVESTING HUGHES eliminates many customer concerns, but does not resolve
some of EDS' critical partnering conflicts.
(P) DIVESTING EDS eliminates customer conflicts, eliminates key capital
constraints, and facilitates possible telecommunications mergers and
acquisitions with minimal loss of synergy.
72
<PAGE>
- -------------------------------------------------------------------------------
GENERAL MOTORS' POTENTIAL OPTIONS TO ADDRESS EDS AND HUGHES CONFLICT
<TABLE>
<CAPTION>
OPTIONS
----------------------------------
<S> <C> <C>
--- Allow businesses to
Manage conflict within | continue conflicting activity
--- current organizational ---|
| structure | Define where and how the
- ----------------- | --- businesses will operate
| General | |
| Motors' |--- |
| options | |
- ----------------- | --- Merge the businesses*
| Manage conflict by |
--- altering current ---|--- Divest Hughes
organizational structure |
--- Divest EDS
</TABLE>
* All or parts of
73A
<PAGE>
General Motors has an array of options to handle the conflicts emerging between
EDS and Hughes. These range from as passive as allowing the businesses to
continue their potentially conflicting activity, to as aggressive as divesting
one of the conflicting businesses.
73B
<PAGE>
- -------------------------------------------------------------------------------
CRITERIA FOR ASSESSING OPTIONS
<TABLE>
<CAPTION>
CRITERIA DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
STRATEGIC CONFLICT/OVERLAP
Partner/customer conflict . Effectiveness in minimizing the business
conflicts between EDS and Hughes, especially
considering potential partners' and customers'
perception of competition and/or conflict of
interest within the General Motors structure
Value destroying overlap . Effectiveness in eliminating potential for
value destroying overlap in which EDS and/or
Hughes may earn lower returns in some contracts
due to their affiliation (e.g., when there are
"one bid per entity" or "fee on fee"
limitations)
Conflicts of ownership . Degree to which EDS and Hughes are capable of
consummating mergers, acquisitions, and other
alliances, without limitations imposed by
General Motors ownership structure
Capital issues . Degree to which EDS and Hughes resolve their
ability to access capital required for
investments
ADDITIONAL CONSIDERATIONS
Business synergies . Degree to which business synergies within
General Motors' structure are leveraged (e.g.,
mutually beneficial/cooperative efforts between
EDS and Hughes, or between parts of EDS and
Hughes)
Feasibility of implementation . Feasibility based on complexity and
organization's ability to implement
</TABLE>
74A
<PAGE>
In considering the array of options accessible, General Motors must critically
assess each in terms of its effectiveness along a spectrum of criteria. These
criteria should include not only the market overlap and capital deployment
issues which have already been discussed, but must also consider the resulting
impact on business synergies within the current General Motors' structure, as
well as the feasibility of effectively implementing each option.
In evaluating the tactical and strategic implications of each option along the
established criteria, divesting EDS emerges as the most effective way for
General Motors to resolve the emerging business development
customer/partner/bidding conflicts) and access to capital conflicts.
Furthermore, this option does not disrupt inter-General Motors business
synergies, and its implementation is manageable.
74B
<PAGE>
OPTION 1: ALLOW BUSINESSES TO CONTINUE CONFLICTING ACTIVITY
- -------------------------------------------------------------------------------
OPTION 1: ALLOW BUSINESSES TO CONTINUE CONFLICTING ACTIVITY
<TABLE>
<CAPTION>
ADVANTAGES DISADVANTAGES
- --------------------------------------------------------------------------------
<S> <C>
. No change in current . Key customer groups continue to sense
structure or activities competition from other companies in the
"General Motors family"
. Government agencies may view EDS and Hughes
as one bidder in some cases
. Potential strategic partners still unwilling
to accept ownership structure
. Capital scarcity and funding inflexibility
limit EDS' and Hughes' strategic options
-- EDS unable to consummate telecom/other
strategic transactions
-- Hughes unable to participate in defense
industry restructuring
-- Ability to align incentives through stock-
based awards is limited
. General Motors' capital allocation decisions in
a scarce capital environment become complex and
subject to conflict
. Potential appearances of conflict emerge as
General Motors continues to make tactical
decisions about operating each business
</TABLE>
75A
<PAGE>
To arrive at this conclusion, it is imperative to assess the tactical and
strategic implications of each option.
The first option of allowing the businesses to continue to operate unrestrained
within the current General Motors structure will likely result in increasing
destructive overlap. The customer and partner conflict issues remain and are
expected to intensify, and neither EDS nor Hughes has gained ground on the
already existing issues of capital deployment and strategic flexibility.
75B
<PAGE>
OPTION 2: DEFINE WHERE AND HOW THE BUSINESSES COMPETE
- -------------------------------------------------------------------------------
OPTION 2: DEFINE WHERE AND HOW THE BUSINESSES COMPETE
<TABLE>
<CAPTION>
ADVANTAGES DISADVANTAGES
- --------------------------------------------------------------------------------
<S> <C>
. Business "definitions" . Key customer groups continue to perceive
resolve business overlaps competition from other companies in the
as they currently exist "General Motors" family
. EDS and Hughes will . Government agencies may view EDS and Hughes
coordinate efforts, on an as one bidder in some cases
ad hoc basis, to win
contracts . Potential strategic partners still unwilling
to accept ownership structure
. Capital scarcity and funding inflexibility
limit EDS and Hughes' strategic options
-- EDS unable to consummate telecom/other
strategic transactions
-- Hughes unable to participate in defense
industry restructuring
-- Ability to align incentives through stock-
based awards is limited
. Defining "acceptable" business space for each
player (EDS and Hughes) will limit strategic
flexibility, may prevent players from
identifying and acting on "next generation"
products and/or services, and will require
constant review and modification
. General Motors' capital allocation decisions
in a scarce capital environment become
complex and subject to conflict
. General Motors drawn into daily decision-
making about where and how the businesses
will compete; may create obligations to
explain tactical decisions to shareholders
. Implementation hurdles exist
-- Difficult to identify all future areas of
conflict; rules will have to be
continuously defined during play in a
fluid IT landscape
-- Differential effects of rules could raise
fiduciary conflicts
-- Restraint "unnatural" for business
managers in competitive commercial
environment; incentives misaligned
-- Legal considerations
</TABLE>
76A
<PAGE>
A slightly more aggressive option involves defining where and how the businesses
will compete (in terms of markets, geographies, customer accounts, service
offerings, etc.). The most problematic aspects of this option are the complexity
in continually defining the market and competitive boundaries in a very fluid
landscape, and the implications limiting strategic flexibility and innovation
within each company. Furthermore, potential issues with alliance flexibility and
capital scarcity would remain.
76B
<PAGE>
OPTION 3: MERGE THE BUSINESSES
- -------------------------------------------------------------------------------
OPTION 3: MERGE ALL OR PART OF THE BUSINESSES
<TABLE>
<CAPTION>
ADVANTAGES DISADVANTAGES
- --------------------------------------------------------------------------------
<S> <C>
. EDS and Hughes consolidate . Access to critical telecom capabilities, not
efforts, rather than owned by EDS or Hughes, is severely hindered
compete, to win contracts due to competitive position
. Limited synergies optimized; . Customer's perception of direct competition
Hughes could provide is confirmed, resulting in loss of $600
$20-$40 million of EDS' million in immediate business and significant
$700+ million telecom needs future options in cable and telecom
. Removes General Motors . Customer seeking "best" solutions will
role in adjudication question independence of service and products
business
. New ownership structure even less appealing
to potential strategic partners
. Capital scarcity and funding inflexibility
issues continue to plague new entity
. Implementation hurdles exist
-- Service and products businesses
incompatible
-- The organizational capabilities and
incentives are incompatible (would likely
lose key executives)
. Creates unique difficulties if only portions
of the businesses are merged
-- Synergies within existing organizations
may be lost (e.g., Hughes might sever
critical ties with its core technology
development groups if only "conflicting"
business are merged)
-- May discourage entrepreneurship/innovation
within "non-merged"/core businesses if
there is some threat of entering into
"overlapping" business, and consequently
being forced to merge
</TABLE>
77A
<PAGE>
A third potential option entails merging all or part of the businesses. This
option would most likely intensify customer and partner conflicts and would be
very difficult to implement (especially due to cultural conflict). There are
also unique complications arising out of merging only parts of each business --
particularly involving the implications of "choosing" which portions of the
businesses should be merged. This option would also further block EDS' access
to key telecommunications capabilities.
77B
<PAGE>
OPTION 4: DIVEST EDS
- -------------------------------------------------------------------------------
OPTION 4: DIVEST ALL OR PART* OF EDS
<TABLE>
<CAPTION>
ADVANTAGES DISADVANTAGES
- --------------------------------------------------------------------------------
<S> <C>
. Customers not threatened by . Hughes' limitations for partnering
other companies in the General due to ownership structure remain
Motors family
. EDS and Hughes would be
separate bidders on government
contracts; able to submit two
bids; able to earn margin on
subcontractor costs
. Sale frees capital for EDS and
General Motors opportunities
. EDS free to tap capital markets
to fund growth opportunities
. EDS able to partner
strategically, free of ownership
dilemma
</TABLE>
* Divesting only part of EDS creates difficulties. Synergies within EDS may
be destroyed. Overlaps will likely continue to surface in the fluid
landscape, complicating decisions around which portions should be
divested
78A
<PAGE>
The fourth option assessed involves divesting all or part of EDS. This option
eliminates customer conflicts and facilitates EDS' possible strategic telecom
mergers and acquisitions with minimal loss of synergy.
78B
<PAGE>
OPTION 5: DIVEST HUGHES
- -------------------------------------------------------------------------------
OPTION 5: DIVEST ALL OR PART OF HUGHES
<TABLE>
<CAPTION>
ADVANTAGES DISADVANTAGES
- --------------------------------------------------------------------------------
<S> <C>
. EDS and Hughes would be . Potential strategic partners for EDS
separate bidders on government still unwilling to accept ownership
contracts; able to submit two structure
bids; able to earn margin on sub
costs . General Motors considers Hughes and
its automotive technologies a
. Sale frees capital for Hughes strategic asset
and General Motors
opportunities . May create complications if only a
portion of Hughes is divested
. Hughes free to tap capital -- Synergies within Hughes (especially
markets for major investments technology transfer and innovation
from defense into commercial
. Simplifies capital allocation applications) could be more
decisions process difficult to achieve
-- Business overlaps will potentially
surface in the fluid landscape,
complicating decisions around which
portions of the business to divest
</TABLE>
79A
<PAGE>
The fifth option, to divest all or part of Hughes, eliminates customer
conflicts, but could divorce the core automotive electronics business from
General Motors and fails to resolve barriers EDS faces in consummating critical
equity-based transactions.
79B
<PAGE>
- -------------------------------------------------------------------------------
RECOMMENDED OPTION: DIVEST ALL OF EDS
<TABLE>
<CAPTION>
<S> <C>
-------------------------------------
| ADVANTAGES |
| |
| + Eliminates customer/partner |
| conflict |
| |
\ | + Eliminates bidding restrictions |
|--- | | |
| / | + Mitigates conflict of ownership | |
| | | |
| | + Resolves capital issues | |
| | | | Master Services Agreement could be negotiated pre-divestiture to
| | + Implementations is feasible | | \ ensure value stability--EDS would continue to reduce its dependency
Option 4: | ------------------------------------- |---- on this relationship
Divest EDS ----| | /
| ------------------------------------- | Hughes' capital flexibility will increase
| | DISADVANTAGES | |
| | | |
| | -- Value of master service | |
| \ | agreement changes | |
|--- | | |
/ | -- Hughes' ownership limitations |
| for mergers and acquisitions |
| still remain |
-------------------------------------
</TABLE>
80A
<PAGE>
Divesting EDS in its entirety emerges as the preferred option, as it most
effectively addresses critical concerns, while creating few disadvantages. Even
the potential disadvantages with this option can be mitigated if managed
proactively.
80B
