Multi-billion bid war for Hughes Electronics

A multi-billion dollar bidding war has broken out in the US for the defence electronics business of Hughes Electronics, which has been put on the block by its parent, General Motors. The outcome could determine the final contours of the US defence industry after four years of consolidation.

Head-to-head in the battle for Hughes is Raytheon, which earlier this week disclosed that it was acquiring the defence electronics units of Texas Instruments, and Northrop Grumman. Winning the race could be critical to each company's hopes of long-term survival as an independent force in the industry.

Raytheon was reported yesterday to have offered $9bn (pounds 5.3bn) for the Hughes businesses. Northrop Grumman, however, was believed to have submitted a bid that is higher by perhaps $200m-$300m.

Jack Smith, chairman of GM, refused yesterday to comment on the reports which a spokesman termed as "speculation". "We're just going to have to let that play out," Mr Smith said at a car show in Detroit.

GM has for some months been seeking a way to refocus its businesses on car making. While anxious to divest itself of the defence-related elements of Hughes, it is likely to retain the automotive-electronic parts of the company and perhaps fold them into GM's own Delphi Automotive Systems.

For sentimentalists, the break-up of Hughes will mean the disappearance of a name that is still associated with the legendary eccentric Howard Hughes, who founded the once-mighty Hughes empire in a disused aircraft hangar in southern California during the Second World War.

Raytheon and Northrop Grumman believe that the Hughes businesses, which includes missile systems, radar systems and other products, would make a good fit with their own companies. A bidding war would be dangerous for each, however, since neither can pay more than it can afford.

Buying Hughes would probably involve either of the suitors taking on between $3bn and $5bn in new debt. Raytheon is already taking on $3bn in additional debt in its acquisition of Texas Instruments.

Whoever emerges as the winner, the Hughes deal may prove to be last of any serious scale in the consolidation fever that has gripped America's defence industry. It follows the other mega-merger of last year: Boeing's $19bn purchase of McDonnell Douglas.

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