Hughes to auction defence and aerospace divisions

Hughes Electronics, founded by the legendary eccentric Howard Hughes and now part of General Motors, may shed its heritage as America's one- time leader in defence innovation by auctioningits military systems and aerospace divisions for a price that could reach $8bn (pounds 5bn).

Such a sale would give fresh impetus to the consolidation process that has transformed the defence industry in the US since the end of the Cold War. Companies seen as the most likely bidders for the Hughes businesses include McDonnell Douglas, Northrop Grumman and Raytheon.

Michael Armstrong, chairman of Hughes, was reported yesterday to have decided to seek buyers for the units to allow his company to concentrate on its expanding telecommunications satellite division. The move would also fit GM's desire to prune its peripheral businesses and get back to its car-making roots. There was no comment yesterday from either Hughes or GM.

A possible obstacle to any large divestiture are the tax implications. Hughes could be persuaded to abandon any auction if the tax burden promised to be too heavy and could not be avoided by way of some tax-free stock transaction.

The loss of the defence and aerospace units would radically alter the character of Hughes, which was founded by Mr Hughes in a hangar in California before World War II. In the public mind it remains famous as the company that invented miracle military technologies ranging from the world's first laser to night-sight infra-red targeting systems. It also produced the landing modules for Nasa's moon programme. At its peak in the mid- 1980s, Hughes had a world-wide payroll of 82,000.

The company has recently had its shares of woes, however, culminating in its failure to land a contract with the Pentagon for a missile-satellite system that was won instead by Lockheed Martin. Its expansion in the satellite field was marked by its purchase of PanamSat for $3bn. Neither Boeing, which is overstretched meeting jet orders, nor Lockheed Martin are considered likely suitors.

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