G.M. TO ACQUIRE HUGHES AIRCRAFT IN $5 BILLION BID

View page in TimesMachine

The General Motors Corporation, in an ambitious diversification into aerospace and high technology, said yesterday that it had agreed to buy the Hughes Aircraft Company for more than $5 billion in cash and stock.

If approved by the stockholders of both companies, the acquisition would be the biggest in history outside the oil industry.

Hughes Aircraft, the nation's seventh-largest military supplier last year and the biggest maker of communications satellites, has had a reputation as a leader in advanced electronics since its origins nearly 40 years ago within the industrial empire of the late Howard R. Hughes.

Diversification Effort

The move is viewed as the latest in a long-term effort by Roger B. Smith, G.M.'s chairman, to diversify into non-automotive fields and to improve G.M.'s competitive position by embracing new technology. [Page D19.] It also follows the company's $2.5 billion purchase last year of Electronic Data Systems Inc., one of the nation's leading data-processing companies and a major supplier to the military.

All three of the major American auto companies have been eagerly looking to the aerospace industry for growth and expertise. But G.M. won out over the Ford Motor Company and the Boeing Company in a secret bidding contest to buy Hughes from its sole owner, the Howard Hughes Medical Institute of Bethesda, Md.

Impact on Institute

The sale, made in the wake of substantial tax questions raised by the Internal Revenue Service, will make the institute the largest private philanthropy in the world. In addition, Dr. Donald S. Fredrickson, president of the institute, told reporters that the money would ''more than double'' its $100 million medical research outlays this year.

The deal became official Tuesday evening when Dr. Fredrickson signed papers already signed by G.M. officials under a procedure devised by Morgan Stanley & Company, the Wall Street adviser to the institute.

According to the announcements, General Motors will buy Hughes for $2.7 billion in cash and 50 million shares of a new class H of G.M. stock to be traded separately, probably on the New York Stock Exchange.

Based on Morgan Stanley's terming the deal as ''in excess of $5 billion,'' Wall Street analysts valued the new G.M. stock at a minimum of $46 a piece.

Public Issue

G.M. said that it also planned to issue 20 million shares of class H stock to the public within three years of the time the deal closed.

Analysts said the class H shares in public hands would create a market for the institute's stock, if the institute wanted to sell its shares.

Moreover, to protect the institute while it holds the stock, G.M. said that it would make up any difference between the stock's market price and $60 on the third anniversary of the closing, but would not pay more than $40 a share. For example, if the stock were to sell at $50, G.M. would pay the institute $10 more.

The institute's $2.7 billion in cash, meanwhile, is expected to be invested in other stocks and bonds.

Hughes Aircraft would be operated as a new G.M. subsidiary to be known as the G.M. Hughes Electronics Corporation, with Allen E. Puckett continuing as chairman and chief executive of Hughes Aircraft. Dr. Puckett would also become a director of the new subsidiary.

At a news conference yesterday morning at the Exxon Building in mid-Manhattan, Mr. Smith, flanked on one side by Dr. Puckett and on the other by Robert Greenhill of Morgan Stanley and Dr. Fredrickson of the institute, noted that General Motors had long been looking for an electronics company and had even ''wanted Hughes before this situation came up.'' Without giving details, he noted that G.M. had had prior ''discussions'' with the institute.

Industry sources added that the two had talked about a joint venture about a year and a half ago and as long as five years ago Mr. Smith had met with the institute in an effort to buy Hughes. The company could not be sold then, these sources said, because of litigation following the death of Mr. Hughes in 1976.

News that G.M. had won the bidding for Hughes Aircraft became known as early as 10 P.M. Tuesday, just a few hours after trustees of the medical institute picked G.M. and informed top G.M. officials.

Mr. Smith, G.M.'s chairman, rushed back from a business trip in Austria and G.M. public relations people alerted Detroit television stations at 4 A.M. to be ready for a chartered flight to New York for what was billed as ''a major news conference'' at 10 A.M.

Big Turnout

As reporters and camera operators crowded into the large basement meeting room, Mr. Smith seemed overjoyed at the big turnout. Sitting at a long table and smiling broadly, he said, ''This is exactly what G.M. needs to get where we want to be for the future. We think it's the way to go.''

''Electronics, he added, ''is the new frontier.''

Two years ago, Mr. Smith had told reporters: ''I've got a lulu of a deal in mind,'' In announcing the E.D.S. acquisition he had said ''No, this isn't it.''

Yesterday, however, when asked whether Hughes was his lulu, he replied, to considerable laughter, ''Lulu is home now.''

G.M. and Ford shares rose only slightly in reponse to the deal but Boeing climbed $2, to $67, in expectation that it would not look elsewhere for a high-technology acquisition. First Boston, which will earn a big fee, jumped $3.75, to $77.75. Although Ford was believed to be taking a look at Sperry now, Sperry rose only slightly in heavy trading.

The news brought sharp criticism from Ralph Nader, the consumer advocate. He assailed the $5 billion deal as one that ''further concentrates an already overconcentrated defense industry.''

Speaking by phone from Washington, Mr. Nader complained that ''instead of investing its windfall profits in the automobile business, G.M. is turning itself into a conglomerate.''

G.M., Mr. Nader added, ''should have invested this money into improving its automobile, in fuel efficiency, in quality control, in all the ways they're deficient to the Japanese.''

Mr. Smith returned to Austria after the news conference and could not be reached for a response, but his earlier remarks seemed to anticipate such accusations.

''I've long believed,'' he said yesterday, ''that major gains in auto technology in the next 20 years will come in electronics.''

Referring to Dr. Puckett, the G.M. chief said that collision avoidance, for one, was ''right down Dr. Puckett's alley.''

'Factory of the Future'

He said that Hughes's electronics prowess would also play key roles in the development of auto systems and what he called ''the factory of the future.''

''We want to have the best products,'' Mr. Smith told reporters, ''and the way to do it is to have the best technology.''

Asked by a reporter whether he had any other big purchases in mind, he said, ''Certainly we are.'' He added, however, that G.M. had ''the basic building blocks we need now.'' Asked whether he had anything as big as Hughes in mind, he responded with a big smile, ''I haven't seen anything as big as Hughes laying around anywhere.''

Mr. Smith noted in response to other questions that G.M. did not have any businesses in Hughes's field and consequently did not foresee any antitrust problems with the deal. He said he did not expect the venture to dilute G.M.'s earnings and ''I don't see people losing jobs over the merger.'' G.M., the nation's biggest employer, had 748,000 workers last year while Hughes employed 75,000.