<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[x] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
General Motors Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
DEFINITIVE ADDITIONAL MATERIALS
The following pages contain certain materials prepared by Institutional
Shareholder Services (the "Proxy Analysis"). General Motors Corporation ("GM")
may distribute copies of the Proxy Analysis to certain holders of GM $1-2/3
Common Stock and GM Class H Common Stock on or after December 5, 1997. Such
Proxy Analysis relates to GM and a series of transactions proposed by GM
involving Hughes Electronics Corporation (the "Hughes Transactions"), as more
fully described in the solicitation statement/prospectus (the "Solicitation
Statement/Prospectus") which forms a part of the Registration Statements on Form
S-4 of General Motors Corporation, File No. 333-37215, and HE Holdings, Inc.,
File No. 333-37223. Please refer to the Solicitation Statement/Prospectus for
additional information on the Hughes Transactions.
<PAGE>
Institutional
Shareholder
Services/SM/
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Proxy Analysis: GENERAL MOTORS
CORP.
GM (NYSE)
GMH (NYSE)
Written Consent: January 18, 1998
Record Date: October 15, 1997
Security ID: 370442105 (CUSIP) 37044210 (CUSIP) 370442303 (CUSIP) 370442402
(CUSIP) 370442501 (CUSIP) 370442600 (CUSIP) 370442709 (CUSIP) 3704422873
(CUSIP) 2365837 (SEDOL) 2366733 (SEDOL) 2365804 (SEDOL)
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MEETING AGENDA
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Item Code Proposals Mgt. Rec. ISS Rec.
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[ ]1 M0412 Approve Recapitalization Plan For FOR
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 2
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FINANCIAL SUMMARY
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INCOME STATEMENT SUMMARY ($ in millions except per share data)
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<TABLE>
<CAPTION>
1994 1995 1996 ACG*
---- ---- ---- ---
<S> <C> <C> <C> <C>
Total Net Sales and Revenues $148,499.00 $160,272,00 $164,069.00 5.1%
Net Income 4,901.00 6,881.00 4,963.00 0.6%
EPS (GM Primary) 5.74 7.14 6.07 2.8%
Dividends per share (GM) 0.80 1.10 1.60 41.4%
EPS (Class H Primary) 2.62 2.77 2.88 4.8%
Dividends per share (Class H) 0.80 0.92 0.96 9.5%
Calendar year-end stock price (GM) $ 42.13 $ 52.88 $ 60.94**
Calendar year-end stock price $ 34.88 $ 49.13 $ 66.81**
(GMH)
Dividends paid since (GM): 1915
Dividends paid since (GMH): 1986
</TABLE>
- ------------------------
* Annual Compound Growth
** Current Price
Fiscal Year Ended: December 31
Source: Company Annual Report
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PERFORMANCE SUMMARY
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<TABLE>
<CAPTION>
1-Year 3-Year 5-Year
----- ----- ------
<S> <C> <C> <C>
Total shareholder returns, GM 9.4% 20.4% 16.4%
Total shareholder returns, S&P 500 28.6% 31.1% 20.1%
Total shareholder returns, S&P Automobiles Index 17.6% 20.5% 18.9%
Total shareholder returns, GMH 24.1% 28.4% 25.9%
Total shareholder returns, Russell 1000 Index 29.5% 27.8% 17.0%
Total shareholder returns, Russell 1000 Technology 25.2% NA NA
Index
</TABLE>
- ---------------------
Source: Bloomberg Business News, Dec. 1, 1997
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BUSINESS: Manufacture of automobiles
ACCOUNTANTS: Deloitte & Touche LLP
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General Motors Corp. . December 4, 1997 (C) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 3
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CORPORATE GOVERNANCE PROFILE
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GOVERNANCE PROVISIONS
================================================================================
Blank check preferred stock (Charter)
D&O liability protection for acts made in good faith (Charter, May 22, 1987)
Unequal voting (Charter)
Elimination of preemptive rights (Charter, May 22, 1981)
Antigreenmail provision (Bylaws)
Director term limits that provide for mandatory retirement at age 70
Confidential voting policy and independent inspectors of election
================================================================================
GOVERNANCE MILESTONES
================================================================================
Voluntary adoption of antigreenmail provision (1990)
Adoption of "lead director" principle when applicable
Outside directors meet three times annually in executive session
Adoption of officer stock ownership requirements (2.5 times to 3.5 times base
salary)
Advanced distribution of agenda and business and financial information to
directors
Comprehensive program to foster interaction between board and management
Policy requiring that the board comprise a majority of independent outsiders
Annual assessment of board and committee effectiveness
CEO must offer resignation from board in conjunction with resignation as CEO
Adoption and publication of 28-point Corporate Governance Guidelines
Adopted policy requiring directors be paid 35% in stock
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 4
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================================================================================
SEVERANCE AGREEMENTS
================================================================================
Golden parachute executive severance agreements triggered by a change in
control
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STATE STATUTES: Delaware
================================================================================
Labor contract provision
Three-year freezeout provision
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
<TABLE>
<CAPTION>
Institutional
Shareholder
Services Page 5
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DIRECTOR PROFILES
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Name Classification Term Ends Dir. Since No Stock
============================================================================================
<S> <C> <C> <C> <C>
Anne L. Armstrong IO 1998 1977
Percy N. Barnevik IO 1998 1997
John H. Bryan IO 1998 1993
Thomas E. Everhart IO 1998 1989
Charles T. Fisher III IO 1998 1972
George M. C. Fisher IO 1998 1997
J. Willard Marriott, Jr. IO 1998 1989
Ann D. McLaughlin IO 1998 1990
Harry J. Pearce/1/ I 1998 1996
Eckhard Pfeiffer IO 1998 1996
John G. Smale I 1998 1982
John F. Smith, Jr. I 1998 1990
Louis W. Sullivan IO 1998 1993
Dennis Weatherstone IO 1998 1986
Thomas H. Wyman IO 1998 1985
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Classified board: No CEO as Chairman: Yes
Current nominees: None Retired CEO on board: No
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Institutional
Shareholder
Services Page 6
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COMPOSITION OF COMMITTEES
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Audit Type Compensation Type Nominating Type
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<S> <C> <C> <C> <C> <C>
Anne L. Armstrong IO John H. Bryan IO Anne L. Armstrong IO
John H. Bryan IO J. Willard Marriott, Jr. IO Thomas E. Everhart IO
Ann D. McLaughlin IO John G. Smale I Charles T. Fisher III IO
John G. Smale I Dennis Weatherstone IO J. Willard Marriott, Jr. IO
Louis W. Sullivan IO Thomas H. Wyman IO John G. Smale I
Dennis Weatherstone IO Thomas H. Wyman IO
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</TABLE>
Committee Name Assigned by Company:
Audit: Audit Committee
Compensation: Executive Compensation Committee
Nominating: Committee on Director Affairs
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 7
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CAPITAL STRUCTURE
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Capital Structure
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Type of Shares Votes per Authorized Shares Shares Outstanding
Share
Class H common 0.50 600,000,000 103,000,000
Common 1.00 2,000,000,000 708,000,000
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Ownership Information
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Beneficial Owner Total Voting Power
Officers & Directors 0.82%
Institutions 59.63%
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Sources: Proxy Statement, CDA Investment Technologies
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Note: The company has two types of voting stock: $1-2/3 common ("common stock")
and Class H common. Each share of common stock and each share of Class H common
stock entitles its holder to one vote and 0.5 votes, respectively. The Class H
stock is a "tracking stock," meaning the dividends on that stock are intended to
track the financial performance of GM's Hughes Electronics subsidiary. The
current tracking stock interest of the Class H shareholders in the earnings of
Hughes Electronics is approximately 25.6 percent. The transactions described
below require the approval of a majority of the common shares and a majority of
the Class H common shares, voting as separate classes, in order to be
consummated.
GM has set a target deadline of Dec. 16, 1997, for the receipt of written
consents. Under Delaware law, GM has 60 days from the date of the earliest dated
consent which is properly delivered to GM in which to obtain the requisite vote
of its shareholders. According to the company's proxy solicitor, the earliest
dated consent was Nov. 19, 1997. Thus, consents must be received by GM on or
before Jan. 18, 1998, in order to be considered valid. However, GM may close the
transactions at any time after it obtains the requisite vote, so long as such
date is 20 business days after GM mailed the solicitation statement/prospectus,
which occurred on Nov. 18, 1997. Thus GM has set the target deadlines as Dec.
16, 1997. Raytheon Co. has the right to terminate its merger agreement with
Hughes Defense if the merger has not been consummated by Jan. 16, 1998.
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 8
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[_] Item 1: Approve Recapitalization Plan
This proposal seeks shareholder approval of a complex series of transactions
involving GM's Hughes Electronics subsidiary (the "Hughes Transactions").
Hughes Electronics has three primary businesses: aerospace and defense
systems, automotive electronics, and telecommunications and space. For the
year ended Dec. 31, 1996, total revenues were $15.9 billion and net earnings
were $1.2 billion.
As part of ISS's evaluation of this proposal, ISS met with Michael Smith,
chairman and CEO of Hughes Electronics. Charles Noski, president of Hughes
Electronics, Roxanne Austin, CFO of Hughes Electronics, and Warren Andersen
of GM's Office of General Counsel.
Transaction Terms
Under the terms of GM's plan, the company will spin off the defense
electronics business of Hughes Electronics to GM shareholders. Immediately
after the spin-off is completed, the defense electronics business of Hughes
("Hughes Defense") will be merged with Raytheon Co. GM shareholders are not
being asked to vote on the Raytheon merger, which has already been approved
by Hughes Electronics as the sole shareholder of Hughes Defense. Unless GM
shareholders approve the spin-off, the merger cannot occur.
When Hughes Defense is merged with Raytheon, it will be permitted to have
approximately $4.3 billion in debt (based on Raytheon's closing share price
as of Nov. 7, 1997). Up to $4.0 billion of the proceeds of this debt will be
provided to Hughes Telecom (the remaining business of Hughes Electronics
after the transactions) for working capital purposes. Any proceeds in excess
of $4.0 billion will made available to GM. Hughes Defense will retain
liability for this debt in connection with the merger (and Class H
shareholders will be compensated in Class A stock for about a quarter of
such amount).
Based on Raytheon's stock price as of Nov. 7, 1997, the value of the
transaction with Raytheon is $9.5 billion, which consists of $5.2 billion in
the combined company's stock to be held by GM shareholders and $4.3 billion
in assumed debt. GM states that the terms of the Raytheon transaction
provide for a substantial premium to the enterprise value of Hughes Defense.
Approval by GM shareholders of the Hughes Transactions would permit the
transfer of Delco Electronics, which is Hughes Electronics, automotive
electronics business, from Hughes Electronics to GM. GM intends to integrate
the Delco Electronics unit into its Delphi Automotive Systems division,
which the board expects will allow Delphi to compete more effectively by
offering more integrated automotive systems. Delco had 1996 sales of $5.6
billion and net income of $534.8 million.
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 9
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Under the terms of the spin-off, GM will spin off to its shareholders all of the
Class A common shares of Hughes Defense, which will amount to 102,630,503
shares. The Raytheon merger is structured as a merger of Raytheon into Hughes
Defense; Hughes Defense will issue Class B common shares to Raytheon
shareholders in exchange for all of the outstanding Raytheon common shares.
After the merger is closed, Hughes Defense (as the surviving company) will
change its name to Raytheon Co. ("New Raytheon"). Hughes Defense and Raytheon
have agreed that if their merger agreement is not consummated under certain
circumstances, the terminating party will be required to pay the nonterminating
party a $200 million fee.
After the merger with Raytheon is completed, GM shareholders will own about 30
percent of Raytheon's total outstanding common stock and will have an 80.1-
percent voting interest with respect to the election and removal of Raytheon's
directors. In all other respects separate class votes are required and there are
provisions to prevent Class B shareholders from being disadvantaged in
transactions, such as a change in control. The allocation of the Hughes Defense
Class A shares between GM common shareholders and GM Class H shareholders will
be determined by a formula which includes the average closing price of
Raytheon's shares for the 30-day period ending five days prior to the closing of
the Raytheon/Hughes Defense merger (the "Raytheon average closing price"). If
this average closing price is between $44.42 and $54.29, the aggregate
transaction value will be fixed at $9.5 billion, with the debt component
dependent on the average closing price. If Raytheon's average closing price is
above $54.29, the transaction value will be greater than $9.5 billion. Likewise,
if the Raytheon average closing price is less than $44.42, the transaction value
will be less than $9.5 billion. GM shareholders will receive disproportionate
voting rights in director elections and removals in New Raytheon in order to
preserve the tax-free nature of the transactions.
Currently, GM's Class H shareholders have approximately a 25.6-percent tracking
stock interest in Delco's earnings. If the transfer of Delco is consummated,
GM's common shareholders will hold the entire interest in Delco's earnings. In
order to compensate GM's Class H shareholders for the transfer of Delco and
other effects of the Hughes Transactions, GM has allocated the Class H
shareholders a disproportionate interest in the Hughes Defense Class A shares in
the spin-off. GM's Class H shareholders currently have a 25.6-percent tracking
stock interest in Hughes Defense, while they will receive a greater percentage
of the Hughes Defense Class A shares in the spin-off. The additional amount of
Hughes Defense Class A common shares to be issued to the Class H shareholders
will be equal to the value of $6.5 billion multiplied by the percentage amount
of the GM Class H common shareholders' tracking stock interest in Hughes
Electronics, plus an amount equal to the product of the Class H tracking
interest in Hughes Electronics and the amount of any proceeds of any Hughes
Defense debt made available to GM. Based on Raytheon's share price as of Nov. 7,
1997 ($51.00 per share) and the Class H shareholders' tracking stock interest in
Hughes Electronics as of Sept. 30, 1997 (25.6 percent), Class H
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 10
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shareholders will receive 58.7 percent of the Class A common shares of Hughes
Defense, and GM common shareholders will receive the remaining 41.3 percent.
As part of the spin-off of Hughes Defense, the GM certificate of incorporation
will be amended to eliminate the possible application with respect to the Hughes
Transactions of a provision which could provide for the conversion of all
currently outstanding Class H common shares into common shares at a 120-percent
exchange ratio. Hughes Electronics was created in 1985 when GM purchased Hughes
Aircraft and combined it with Delco. The Class H shares were designed to track
an interest in the earnings of Hughes Electronics. Pursuant to GM's certificate,
upon a sale of "all or substantially all" of the assets of Hughes Aircraft, the
Class H shares would convert into common shares at the 120-percent exchange
ratio. It is uncertain if this provision to convert Class H shares into common
shares would apply in connection with these transactions, since there is no
clear definition as to what constitutes a sale of all or substantially all of
the assets of Hughes Aircraft. For the purposes of this provision, Hughes
Defense and Hughes Telecom would be considered to be the assets of Hughes
Aircraft (i.e., Delco would not be included). On this basis, Hughes Defense
represented approximately 60 percent of total revenues and approximately 72
percent of net income in 1996. In conversations with ISS, GM representatives
stated their belief that the implied market valuation of Hughes Telecom is
greater than that of Hughes Defense, primarily because of its growth potential.
On a pro forma basis, Hughes Telecom's revenues have grown at an annual compound
rate of 23 percent over the past three years.
GM shareholders do not have dissenter's rights with respect to the Hughes
Transactions. Such rights would permit them to seek an appraisal of their shares
in a court proceeding.
GM's Reasons for the Transactions
The primary impetus for the Hughes Transactions was the rapid consolidation in
the defense industry. GM determined that the best course of action for the
company would be to i) merge Hughes Defense with another defense company, ii)
integrate Delco into Delphi, and iii) provide Hughes Telecom with additional
capital to fund opportunities for growth. The Hughes Transactions will eliminate
a significant portion of GM's annual charge against earnings of over $120
million for amortization of goodwill, which was created when Hughes Aircraft was
originally acquired.
According to GM, this transaction will provide the Class H shareholders with
premium valuations for Delco and Hughes Defense. Class H shareholders will
retain their tracking interest in Hughes Telecom, which will be a "purer play"
company that is well-funded for future growth. The transactions will also give
the Class H shareholders "asset-based" New Raytheon shares, meaning that the
Class A shares represent an equity interest in New Raytheon and not a tracking
interest in a percentage of its earnings. GM also argues that the transactions
provide for improved terms for the Class H shares (see below).
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General Motors Corp. . December 4, 1997 (C)1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 11
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GM common shareholders are expected to benefit from the transactions through the
combination of Delco and Delphi and the fact that any debt proceeds in excess of
$4.0 billion will be made available to GM. Additionally, GM common shareholders
should benefit through GM's ownership of the portion of the tracking interest in
Hughes Telecom that will not be held by the Class H shareholders. GM
shareholders will also receive a distribution of Class A shares in the merged
defense company.
Both GM common and Class H shareholders will have an interest in New Raytheon
after the merger. This company will be one of the largest defense electronic
systems providers, with 1996 pro forma revenues of $20.5 billion. Raytheon
expects to have market leadership positions in markets for engineering and
construction of aircraft. Furthermore, the Raytheon/Hughes Defense merger will
provide the combined company with significant opportunities to realize cost
synergies.
If both the spin-off and the merger of Hughes Defense are not consummated, GM
could lose the ability to spin off and merge Hughes Defense with another company
without realizing a taxable gain for income tax purposes. Recently signed
legislation limits the ability of companies to avoid triggering taxable income
when they spin off a subsidiary to shareholders when there is a prearranged
merger involving the spun off subsidiary.
Fairness Opinions
GM retained Merrill Lynch and Salomon to render fairness opinions to the board
stating that the Hughes Transactions are fair to shareholders (both common and
Class H) from a financial point of view. Among other types of analysis, Merrill
Lynch and Salomon performed comparable companies analyses, comparable
transactions analyses, and discounted cash flow analyses. Based on a comparable
company analysis, Merrill Lynch and Salomon estimated the enterprise value of
Hughes Defense to range from $6.2 billion to $7.2 billion and the equity value
of Hughes Defense to range from $2.3 billion to $3.3 billion. Merrill Lynch and
Salomon note that the total transaction value (assuming $3.9 billion of net
debt) for the Raytheon merger compares favorably to the estimated enterprise
values and estimated equity values for Hughes Defense. Based on a comparable
company analysis for Delco, Merrill Lynch estimated Delco's value to range from
$4.4 billion to $5.4 billion. Based on a comparable transaction analysis,
Merrill Lynch estimated values for Delco in the range of $5.6 billion to $6.6
billion. Using discounted cash flow, Merrill Lynch estimated Delco's value on a
stand alone basis to range from $3.6 billion to $4.7 billion, while estimated
values for Delco after giving effect to the benefits expected to be derived from
the combination of Delco and Delphi ranged from $5.3 billion to $7.0 billion.
Salomon estimated Delco's value to range from $4.9 billion to $5.7 billion based
on a comparable company analysis. Based on a discounted cash flow analysis,
Salomon estimated Delco's value to range from $4.0 billion to $4.6 billion
stand-alone and from $5.4 billion to $6.4 billion when giving effect to the
benefits expected to be derived from the combination of
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 12
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Delco with Delphi. Merrill Lynch and Salomon have each provided financial
advisory services to GM and Raytheon in the past and have been paid $10 million
and $5 million, respectively. If the Hughes Transactions are consummated,
Merrill Lynch and Salomon will receive additional fees of $10 million and $15
million, respectively.
Financial Summary
The following table lists historical and pro forma financial information for GM
common shareholders. The pro forma data assume an exchange ratio in the Raytheon
merger based on a share price for Raytheon of $51.00.
<TABLE>
Pro Forma
---------
Historical GM Common Raytheon
---------- --------- --------
<S> <C> <C> <C>
Earnings per share:* $ 6.07 $ 5.91 $0.16
Dividends per share:* $ 1.60 $ 1.60 $0.05
Book value per share:** $30.17 $28.47 $1.78
*For the year ended Dec. 31, 1996
**As of Sept. 30, 1997
</TABLE>
The following table lists historical and pro forma financial information for GM
Class H shareholders. The pro forma data assume an exchange ratio in the
Raytheon merger based on a share price for Raytheon of $51.00.
<TABLE>
Pro Forma
---------
Historical GM Class H Raytheon
---------- ---------- --------
<S> <C> <C> <C>
Earnings per share:* $ 2.88 $ 0.33 $ 1.56
Dividends per share:* $ 0.96 $ 0.00 $ 0.47
Book value per share:** $15.09 $14.10 $17.46
*For the year ended Dec. 31, 1996
**As of Sept. 30, 1997
</TABLE>
Governance Issues
From a corporate governance perspective, we note that the Hughes
Defense/Raytheon merger was unanimously approved by the board following arm's-
length negotiations between GM/Hughes Electronics and Raytheon. The board also
unanimously approved the Hughes Transactions. GM's Capital Stock Committee,
which is comprised solely of independent directors and oversees transactions in
which GM's two classes of stock may
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 13
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have differing interests, also approved the transactions. Also, GM's board
formed the Hughes Defense Spin-Off Committee (which included both inside and
independent directors) to oversee the process of negotiating what eventually
became the Hughes Transactions. GM received a competing merger offer for Hughes
Defense from Northrop Grumman Corp. Members of Hughes Electronics' senior
management team recommended Raytheon as a merger partner over Northrop Grumman
because of Raytheon's higher merger value and the absence of other significant
differences between the two transactions.
GM's board believed that a recapitalization of the Class H shares into common
shares at the 120-percent exchange ratio would not be beneficial to either class
of shares. The board believes that such a recapitalization would cause
substantial dilution to the common shares (including those which would be held
by former Class H holders) and would prevent Class H shareholders from owning an
investment focused on the businesses of Hughes Electronics. GM contends that
since many class H shareholders would not want to be holders of GM common stock,
there could be a significant sell-off of GM's common shares if a
recapitalization were to occur, which could adversely affect the shares' market
value.
New Class H shares
As part of the transactions, the existing Class H shares will be recapitalized
into "New Class H" shares, which will have different rights. Currently, each GM
Class H share generally entitles its holder to 0.5 vote. The New Class H shares
will entitle their holders to 0.5 vote per share, subject to upward adjustment
based on the relative market values of the common shares and the New Class H
shares over a specified period following consummation of the transactions. As
noted above, GM's certificate of incorporation provides for the conversion of
Class H shares into common shares at a 120-percent exchange ratio i) at the
discretion of the board, upon the satisfaction of certain requirements
(including the payment of a certain level of dividends on the Class H shares
over the preceding five years), or ii) automatically upon the disposition to a
person other than GM of substantially all of the business of Hughes Aircraft (or
its successors) or substantially all of the other business of Hughes Electronics
(i.e., Delco). The New Class H shares will be convertible into common shares at
the 120-percent exchange ratio i) at the board's discretion at any time after
Dec. 31, 2002, or ii) automatically upon the sale or transfer of 80 percent or
more of the value of the assets of Hughes Electronics. The 80-percent conversion
threshold is in place at a number of companies with tracking stock capital
structures in place. GM does not expect to pay cash dividends of $0.96 per
share.
In connection with the designation of the terms of the New Class H shares, GM's
board has adopted a new policy statement regarding the company's dual-class
capital structure. The policy statement states that the board will resolve all
material matters in which the two classes of stock may have differing interests
in accordance with the best interests of GM
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General Motors Corp. . December 4, 1997 (C), 1997 Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 14
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and all of its shareholders. The statement provides that a process of fair
dealing shall govern the interaction between GM and Hughes Electronics. The
statement also provides that any transfer to or acquisition by GM of assets
representing 33 percent or more of the value of Hughes Electronics shall
require the approval of the Class H and common shareholders, voting as
separate classes. Furthermore, the policy statement specifies that in the
event of a transfer of Hughes Electronics assets to GM, GM will provide for
the Class H shareholders to have an interest in such assets at least equal
to the tracking interest held by the Class H shareholders at the time of the
transfer. In the event of a distribution of Hughes Electronics assets to GM
shareholders (common and Class H), the portion of such assets distributed to
Class H shareholders shall be no less than the Class H tracking interest at
the time of distribution.
Class H Opposition
Since the Hughes Transactions were announced in January 1997, nine lawsuits
have been filed against GM and its board. These lawsuits have been
consolidated into a single suit alleging that the board breached its
fiduciary duties to shareholders in connection with agreeing to enter into
the Hughes Transactions. The suit seeks to enjoin the company from
consummating the Hughes Transactions or any other disposition of Hughes
Defense which would not recapitalize the Class H shares into common shares
at a 120-percent exchange ratio. The plaintiffs' request for expedited
discovery and for the scheduling of a hearing on a motion for a preliminary
injunction in the suit was recently denied by the Delaware court.
Stonington Management Corp. is actively opposing the Hughes Transactions.
Stonington is asking institutional shareholders of the Class H shares to
vote against GM's written consent proposal (or to not return consents, which
would have the same effect) on the grounds that GM is "attempting to renege
on its basic deal with the Class H stockholders" and that "GM is trying to
extort value from Class H for the benefit of the ordinary common" by
transferring Hughes Defense without recapitalizing the Class H shares into
common shares at the 120-percent exchange ratio.
ISS spoke with Mark Brodsky of Stonington regarding the Hughes Transactions.
Mr. Brodsky believes that GM is attempting to "misallocate the proceeds" of
the Hughes Transactions among the common and Class H shareholders. Mr.
Brodsky told ISS that there is no downside for the Class H shareholders in
withholding consents or submitting consents against the proposal in the
early part of the solicitation period, since shareholders may submit
consents or change their vote by submitting new consents at any time before
the consent deadline. Mr. Brodsky believes that since the Raytheon/Hughes
Defense merger could not be recreated on a tax-free basis, there is no way
that GM would allow the transaction not to be consummated. Mr. Brodsky
contends that if enough Class H shareholders oppose the solicitation, GM
would likely enhance the value of the consideration to be received by the
Class H shareholders. Mr. Brodsky has suggested that
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 15
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GM issue to Class H shareholders a contingent value right guaranteeing those
shareholders additional consideration if the value of the equity received by the
Class H shareholders in the Hughes Transactions is less than what they would
receive if a recapitalization of the Class H into common at a 120-percent
exchange ratio were to occur. Mr Brodsky also stated that GM could increase the
Class H shareholders' interest in New Raytheon or Hughes Telecom in order to
enhance the transactions.
GM's Warren Andersen told ISS that the transactions were structured so as to
balance the interests of common and Class H shareholders. According to Mr.
Andersen, GM could not unfairly increase the consideration to the Class H
shareholders at the common shareholders' expense. Also, Mr. Andersen told ISS
that changing the nature of the consideration to Class H shareholders would
require the company to seek a new tax ruling from the IRS (which could perhaps
be unattainable) or could cause the transaction to be subject to the recently
signed legislation, either of which would entail delay, and that changing the
form or amount of consideration would also require GM to obtain new fairness
opinions from the financial advisors (which could cause delay) and file with the
SEC and distribute to shareholders a supplement to the solicitation statement,
which would result in substantial further delay before the transactions could be
closed. Each of these requirements could potentially jeopardize the transactions
as a closing would clearly go beyond the Jan. 16 date.
In a letter to certain Class H shareholders, Mr. Brodsky argues that the terms
of the Class H shares will not be improved in the transactions and will in fact
be adversely affected. He asserts that the terms of the New Class H shares would
make the 120-percent conversion provision much less likely to go into effect.
Under the terms of the New Class H shares, he asserts, GM could transfer 79
percent of Hughes Telecom without triggering the provision. Mr. Brodsky also
points out that many of the supposed rights of the New Class H shares are
contained in the board's new policy statement, which in the future may be
changed much more easily that the company's charter. According to Mr. Brodsky,
case law in Delaware has found that "all or substantially all" of a company's
assets may consist of far less than 80 percent.
Conclusion
We believe that these transactions will benefit both common shareholders and
Class H shareholders and that the GM board has provided for fair treatment of
the holders of both classes of shares. With respect to the potential application
of the 120-percent conversion ratio for the Class H shares, since GM's
certificate does not define what is "all or substantially all" of Hughes
Aircraft, it is not clear if the transactions could be found in a court of law
to trigger the provision. In any event, we believe that these transactions
should provide the Class H shares with long-term value in excess of what could
be realized through a recapitalization of those shares into common shares.
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General Motors Corp. . December 4, 1997 (c)1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
<PAGE>
Institutional
Shareholder
Services Page 16
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The transactions provide for Class H shareholders to receive an asset-based
rather than a tracking interest in New Raytheon--which will have an improved
market position in the defense industry after the merger--and a continuing
interest in Hughes Telecom, which will have a substantial amount of capital to
invest in its growing businesses. Also, the value accorded to Delco and "other
factors" in the transactions of $6.5 billion are considered by most to be more
than equitable. In addition, we agree with the board that a recapitalization of
Class H shares into common shares could reduce the value of the common shares,
including those that Class H shareholders would receive in such a
recapitalization.
Because of the terms of the transactions, the expected strategic benefits, and
the fairness opinions rendered by the company's financial advisors, we believe
that this proposal warrants the support of GM's common and Class H shareholders.
We recommend a vote FOR Item 1.
------------------------------
General Motors Corp.
3044 West Grand Blvd.
Detroit, Michigan 48202-3091
(313) 556-2044
Company Solicitor: Morrow & Co. (800) 634-4458
Shareholder Proposal Deadline: December 16, 1997
This proxy analysis has not been submitted to, or received approval from, the
Securities and Exchange Commission. While ISS exercised due care in compiling
this analysis, we make no warranty, express or implied, regarding the accuracy,
completeness, or usefulness of this information and assume no liability with
respect to the consequences of relying on this information for investment or
other purposes.
Endnotes
1. Mr. Pearce is listed as an executive officer of the company.
Source: General Motors Corp. 1997 Proxy Statement, p. 15.
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General Motors Corp. . December 4, 1997 (c) 1997, Institutional
Mark Brockway, Senior Analyst Shareholder Services
Phone: 301/718-2255
