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DEFINITIVE ADDITIONAL MATERIALS
The following pages contain a letter that will be communicated to employees
of Hughes Electronics Corporation ("Hughes Electronics"), many of whom hold GM
Class H Common Stock directly and/or through employee benefit plans. The letter
may also be distributed to others who either own, have the power to vote or may
advise owners or persons with the power to vote, GM common stock in connection
with the solicitation. The letter will be distributed on or after November 26,
1997. Such letter relates to a series of transactions involving Hughes
Electronics (the "Hughes Transactions"), as more fully described in the
solicitation statement/prospectus (the "Solicitation Statement/Prospectus")
which forms a part of the Registration Statements on Form S-4 of General Motors
Corporation, File No. 333-37215, and HE Holdings, Inc., File No. 333-37223.
Please refer to the Solicitation Statement/Prospectus for additional information
on the Hughes Transactions.
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Message From the Chairman
You should have received by now a Solicitation Statement/Prospectus dated
November 10, 1997 with respect to our announced transactions referred to as the
"Hughes Transactions." Many Hughes employees have recently received an e:Mail
message which contains opinions that are critical of these transactions. We
disagree with those views and encourage every stockholder to read the
Solicitation Statement/Prospectus carefully for more information about the
transactions before making a decision.
I support these transactions because I believe that they address the strategic
challenges facing our businesses and deliver superior value to stockholders.
These transactions give all of our businesses the best opportunity for long term
success in their different industries. To all of us who are Class H
stockholders, these transactions deliver not only premiums on Hughes Defense and
Delco Electronics that are well in excess of their stand-alone values, but also
the opportunity to participate in the success of "New Raytheon" through our
receipt of New Raytheon Class A stock. These transactions also provide us with
the continued opportunity to participate in the growth and success of Hughes
Telecom.
At the close of these transactions, we will all be stockholders in New Raytheon
as well as have a continued tracking stock interest in the new Hughes
Electronics, and will be sharing the rewards of each other's achievements.
The information in the following letter reviews matters covered in the
Solicitation Statement/Prospectus, which is also available on the Internet at
www.gm.com. Presentations to employees by senior Hughes management are also
planned for early December to provide further explanations and forums for your
questions.
Dear Colleagues:
General Motors Corporation ("GM") and Hughes Electronics Corporation ("Hughes")
have announced a series of transactions relating to Hughes (the "Hughes
Transactions"). We are asking for your support of the Hughes Transactions and
encourage you to vote as soon as possible.
The Hughes Transactions were designed to address certain strategic challenges
facing each of the three principal businesses of Hughes and to unlock
shareholder value for both GM $1-2/3
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and Class H stockholders. They are the result of intense analysis and review by
a large team of Hughes and GM management and financial and legal advisers, and
we believe they provide attractive premiums on the businesses involved as well
as greater certainty of achieving value compared to other alternatives. The
Boards of Directors of Hughes and GM, including the Capital Stock Committee of
the GM Board (which oversees those matters in which the two classes of GM common
stock may have divergent interests), have been a part of this process from the
beginning and have unanimously approved the Hughes Transactions as fair to and
in the best interests of both GM $1-2/3 and Class H common stockholders.
Description of the Hughes Transactions
The following summarizes the impact of the Hughes Transactions on each of
Hughes' three current businesses:
. Hughes Defense. GM will spin-off Hughes Defense to GM's $1-2/3 and
Class H stockholders. Before this transaction, Hughes Defense will
borrow approximately $3.9 billion to $4.9 billion of debt (with the
proceeds applied as described below). Immediately after it is spun
off, Hughes Defense will merge with Raytheon Company ("Raytheon") in a
merger that values Hughes Defense at approximately $9.5 billion and
will result in one of the largest providers of defense electronics in
the world ("New Raytheon").
. Delco Electronics ("Delco"). Hughes will transfer Delco to GM. GM will
combine Delco with Delphi, GM's components unit, creating the leading
automotive components company in the world. Principally in return for
this transfer, GM's Class H stockholders will receive additional stock
of Hughes Defense (New Raytheon), beyond their current proportionate
tracking stock interest in Hughes Defense, with an indicated market
value of $1.665 billion (plus about a quarter of the amount of any
proceeds of Hughes Defense debt that would be made available to GM as
described below). This is consistent with an implied value of $6.5
billion for Delco and other factors affecting the Class H
stockholders, which amount takes into account the benefits of the
integration of Delco and Delphi.
. Hughes Telecom. GM will recapitalize the existing Class H stock on a
share-for-share basis into a new Class H stock that will track Hughes'
telecommunications, broadcast and satellite businesses ("Hughes
Telecom"). Up to $4.0 billion of the proceeds of the debt incurred by
Hughes Defense prior to its merger with Raytheon will be made
available to fund Hughes Telecom. Any amount in excess of $4.0 billion
will be made available to GM (and Class H stockholders will be
compensated in Hughes Defense stock for about a quarter of such
amount).
The amount of debt to be incurred by Hughes Defense prior to its merger with
Raytheon, the indicated value of the merger with Raytheon and the amount of the
stock of Hughes Defense
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(New Raytheon) that will be distributed to holders of each class of GM common
stock depends on the market price of Raytheon common stock during a specified
period prior to the closing of the transactions. Based on a recent Raytheon
stock price of $53-1/16 (the closing price on November 25, 1997), the debt to be
incurred would be about $4.1 billion--with $4.0 billion made available to Hughes
Telecom and about $54 million made available to GM (as noted above, Class H
stockholders would be compensated with additional Hughes Defense stock for about
a quarter of this amount), the total indicated value of the merger with Raytheon
would be about $9.5 billion and the total value of the stock to be distributed
to GM $1-2/3 and Class H stockholders would be about $5.4 billion. Based on this
Raytheon stock price, Class H stockholders would receive for each share of Class
H stock that they hold at the time Hughes Defense stock valued at about $30.01
and $1-2/3 stockholders would receive for each share of $1-2/3 stock that they
hold at the time Hughes Defense stock valued at about $3.35. For additional
information as to the effect of changes in the Raytheon stock price on these
amounts, please see the tables on pages 5 and 70 of the Solicitation
Statement/Prospectus.
Why the Hughes Transactions Are Good for GM's $1-2/3 and Class H Stockholders
. Premium Value for Hughes Defense. The $9.5 billion value for Hughes
Defense in the merger with Raytheon represents a substantial premium
to its enterprise value under the current ownership structure--
approximately a 40% premium to the midpoint valuation of Hughes
Defense based on the market value of comparable publicly traded
companies. This premium value was achieved in a competitive bid
process in the last round of the consolidation of the defense
industry.
. Benefits of Delco/Delphi Integration. The transfer of Delco to GM will
allow Delco to be more fully integrated with Delphi, which should
enable the combined Delco/Delphi to participate more effectively in a
component industry trend toward integrated automotive systems. The
benefits of this integration were considered in determining the $6.5
billion value for Delco and other factors that was used to establish
the amount of the Hughes Defense stock to be allocated to Class H
stockholders. This value represents a substantial premium to Delco's
enterprise value under the current ownership structure--approximately
a 30% premium to the midpoint valuation of Delco based on the market
value of comparable publicly traded companies. Thus, holders of both
GM $1-2/3 and Class H stock will share in the benefits of the
integration of Delco and Delphi.
. Attractive Total Value Attributable to Class H Stock. Based on the
foregoing comparisons to the market values of comparable publicly
traded companies, the total value attributable to Class H stock
represents a premium of approximately 35% to the underlying value of
Hughes Defense and Delco.
. Retain Current Interest in Hughes Telecom. GM's $1-2/3 and Class H
stockholders will retain their current tracking stock interests in
Hughes Telecom, which will receive about $4.0 billion of new capital
funding. Stockholders will
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retain the possibility of participating in premiums with respect to
the businesses of Hughes Telecom in the future.
. Tax-Free Transaction. The Hughes Transactions are generally tax-free
for U.S. federal income tax purposes and are "grandfathered" under
recently enacted tax legislation. The structure of the transactions
also preserves flexibility to pursue tax-free transactions related to
Hughes Telecom in the future should they prove desirable.
. New Class H Stock Terms and GM Board Policy Statement. The terms of
the new Class H stock and a new GM Board policy statement regarding
capital stock matters are described in the Solicitation
Statement/Prospectus. These provisions will provide stockholders with
increased clarity and protection with respect to their opportunity to
participate in Hughes Telecom's future growth. These provisions were
developed in response to concerns raised by investors from time to
time, balanced by considerations related to the tax treatment of the
stock and the need to maintain flexibility for GM and Hughes Telecom.
As part of this process, we also reviewed and considered the terms of
other publicly traded tracking stocks.
If Hughes Telecom were to dispose of businesses representing less than
80% of the fair market value of Hughes Telecom's assets to a person
other than GM and then to make a distribution of any of the proceeds
to GM, the new Class H stock terms and the new GM Board policy
statement would result in a proportionate distribution of those
proceeds to new Class H stockholders. All proceeds retained by Hughes
Telecom would be available for reinvestment in its businesses.
Why GM Is Not Recapitalizing the Class H Stock Into $1-2/3 Stock at a 120%
Exchange Ratio
As part of the stockholder vote on the Hughes Transactions, GM's certificate of
incorporation will be amended to eliminate any possible application of the 120%
recapitalization provision to the Hughes Transactions. There is a substantial
question as to whether the Hughes Transactions would have resulted in such a
recapitalization even absent such a stockholder vote because such a
recapitalization is only triggered by the sale or disposition of substantially
all of the combined defense and telecommunications businesses of Hughes, and
only the defense business is being disposed of in the Hughes Transactions.
In any event, we believe that the Hughes Transactions provide greater certainty
of realizing value compared to a recapitalization of Class H stock into $1-2/3
stock at a 120% exchange ratio. Such a recapitalization would likely have had an
adverse effect on the market value of $1-2/3 stock, including the shares that
would have been issued to Class H stockholders in the recapitalization, because:
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. The number of shares of $1-2/3 stock outstanding would have increased
by approximately 18% (assuming that 1.23 shares were issued for each
share of Class H stock), with substantial resulting dilution to
earnings per share.
. The $1-2/3 stock issued in the recapitalization would have been
distributed to investors who we believe would not necessarily desire
to hold $1-2/3 stock, with a likely result that there would be
substantial selling activity that would adversely affect the market
price of such stock.
In view of the dilution and selling pressure on $1-2/3 stock, there can be no
assurance as to what the market value of 1.23 shares of $1-2/3 stock issued in
such a recapitalization would have been on any date. In light of the foregoing,
GM decided that a recapitalization into $1-2/3 stock would not be in the best
interests of either GM's $1-2/3 or Class H stockholders and decided instead to
propose an alternative transaction that would be fair to both classes of common
stockholders and would enhance stockholder value while avoiding the
uncertainties associated with a recapitalization into $1-2/3 stock.
We believe that the proposed Hughes Transactions accomplish these goals by
permitting both $1-2/3 and Class H stockholders to participate in the
substantial premium achieved for Hughes Defense and the benefits of the
Delco/Delphi integration while maintaining a continued tracking stock interest
in Hughes Telecom, which will have substantial new funding to pursue its growth
opportunities.
Based on these considerations and the additional information in the Solicitation
Statement/Prospectus, we are asking all GM stockholders to vote in favor of the
Hughes Transactions promptly so that we receive their votes as soon as possible.
Sincerely,
Michael T. Smith
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The following Appendix will be attached to some (but not all) forms of this
letter to provide additional information about the value of the stock of Hughes
Defense (New Raytheon) that will be distributed to holders of each class of GM
common stock, the amount of debt to be incurred by Hughes Defense prior to its
merger with Raytheon and the indicated value of the merger with Raytheon.
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APPENDIX
Total Indicated Value of Merger with Raytheon
The following table shows how changes in the average closing price of Raytheon
stock prior to the Raytheon merger would affect the total mix of stock and debt
(i.e., new debt to be incurred by Hughes Defense) in the merger. Proceeds of the
new debt incurred by Hughes Defense up to $4.0 billion will be made available to
Hughes Telecom. Any proceeds in excess of $4.0 billion would be made available
to GM. The table also shows how changes in the average closing price of Raytheon
stock prior to the merger would affect the total indicated value of the merger
with Raytheon.
<TABLE>
<CAPTION>
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Average Total Value of Total
Raytheon Hughes Defense Hughes Indicated Value of
Stock Price (New Raytheon) Stock Defense Debt Merger with Raytheon
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($ Billions, Except Stock Price)
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<S> <C> <C> <C>
$65 $6.7 $3.9 $10.6
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$60 $6.2 $3.9 $10.1
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$55 $5.6 $3.9 $ 9.5
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$50 $5.1 $4.4 $ 9.5
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$45 $4.6 $4.9 $ 9.5
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$40 $4.1 $4.9 $ 9.0
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</TABLE>
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Distribution of Hughes Defense (New Raytheon) Shares to
$1-2/3 Stockholders and Class H Stockholders
The following table shows how changes in the average closing price of Raytheon
stock prior to the merger would affect the amount of Hughes Defense (New
Raytheon) stock to be distributed to $1-2/3 stockholders and Class H
stockholders and the allocation of such stock between the classes.
<TABLE>
<CAPTION>
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Distribution of Distribution of
Overall Percentage Hughes Defense Hughes Defense
Distribution of (New Raytheon) Stock (New Raytheon) Stock
Hughes Defense Per Share of Per Share of
(New Raytheon) Stock $1-2/3 Stock Class H Stock
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Number of Value of Number of Value of
Average Percentage to Percentage to Hughes Hughes Hughes Hughes
Raytheon $1-2/3 Class H Defense Defense Defense Defense
Stock Price Stockholders Stockholders Shares Shares Shares Shares
----------- ------------ ------------ ------ ------ ------ ------
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<S> <C> <C> <C> <C> <C> <C>
$70.00 51.2% 48.8% 0.07429 $5.20 0.48882 $34.22
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$68.00 50.5% 49.5% 0.07330 $4.98 0.49565 $33.70
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$66.00 49.8% 50.2% 0.07226 $4.77 0.50290 $33.19
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$64.00 49.0% 51.0% 0.07114 $4.55 0.51059 $32.68
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$62.00 48.2% 51.8% 0.06995 $4.34 0.51878 $32.16
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$60.00 47.3% 52.7% 0.06869 $4.12 0.52752 $31.65
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$58.00 46.4% 53.6% 0.06733 $3.91 0.53686 $31.14
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$56.00 45.4% 54.6% 0.06589 $3.69 0.54687 $30.62
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$54.00 44.3% 55.7% 0.06433 $3.47 0.55762 $30.11
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$52.00 42.4% 57.6% 0.06151 $3.20 0.57705 $30.01
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$50.00 40.1% 59.9% 0.05817 $2.91 0.60013 $30.01
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$48.00 37.6% 62.4% 0.05455 $2.62 0.62513 $30.01
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$46.00 34.9% 65.1% 0.05061 $2.33 0.65231 $30.01
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$44.00 32.2% 67.8% 0.04667 $2.05 0.67951 $29.90
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$42.00 30.2% 69.8% 0.04375 $1.84 0.69965 $29.39
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$40.00 27.9% 72.1% 0.04054 $1.62 0.72180 $28.87
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</TABLE>
