-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RcRf4RsyG2Wy+NfUJv8JjS/RoUeGavOU1QLj8HaEf9I5iijPQyqvgFVUhsuXCzzd UZNNNAHGjVPEI+UW4oWJBQ== 0000950131-96-001755.txt : 19960430 0000950131-96-001755.hdr.sgml : 19960430 ACCESSION NUMBER: 0000950131-96-001755 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960429 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-37025 FILM NUMBER: 96552938 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10153-0075 BUSINESS PHONE: 3135565000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 767 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10153-0075 BUSINESS PHONE: 3135565000 SC 13E3/A 1 AMENDMENT NO. 3 TO SCHEDULE 13E-3 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 3 (DATED APRIL 29, 1996) TO SCHEDULE 13E-3/A RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934) GENERAL MOTORS CORPORATION (NAME OF ISSUER) GENERAL MOTORS CORPORATION (NAME OF PERSON(S) FILING STATEMENT) CLASS E COMMON STOCK (TITLE OF CLASS OF SECURITIES) 37044240 (CUSIP NUMBER OF CLASS OF SECURITIES) J. MICHAEL LOSH EXECUTIVE VICE PRESIDENT GENERAL MOTORS CORPORATION 3044 WEST GRAND BOULEVARD DETROIT, MICHIGAN 48202-3091 (313) 556-3549 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT) COPIES TO : WARREN G. ANDERSEN ROBERT S. OSBORNE, P.C. GENERAL MOTORS CORPORATION KIRKLAND & ELLIS 3031 WEST GRAND BOULEVARD 200 EAST RANDOLPH ST. DETROIT, MICHIGAN 48202-3091 CHICAGO, ILLINOIS 60601-6636 (313) 974-1528 (312) 861-2368 This statement is filed in connection with (check the appropriate box): a.[X]The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [XThe]filing of a registration statement under the Securities Act of 1933. c.[_]A tender offer. d. [_None]of the above. Check the following box if soliciting materials or an information statement referred to in checking box (a) are preliminary copies: [X] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ITEMS 1 THROUGH 17. INTRODUCTION This Rule 13e-3 Transaction Statement is being filed by General Motors Corporation, a Delaware corporation ("General Motors"), in connection with a split-off (the "Split-Off") of General Motors' wholly owned subsidiary, Electronic Data Systems Holding Corporation, a Delaware corporation (together with its subsidiaries, "EDS"), pursuant to a merger in which each outstanding share of General Motors Class E Common Stock, $0.10 par value per share (the "Class E Common Stock"), will be converted into one share of EDS Common Stock, $0.01 par value per share (the "EDS Common Stock"). As a result of the Split- Off, EDS will become an independent, publicly held company, holders of Class E Common Stock will become stockholders of EDS rather than of General Motors, and Class E Common Stock will cease to exist. All other outstanding shares of General Motors capital stock will remain outstanding, and the terms of such stock will remain essentially unchanged. EDS has filed a Registration Statement on Form S-4 (as amended and including exhibits, the "Registration Statement") with the Securities and Exchange Commission concurrently herewith in connection with the Split-Off. The cross reference sheet on the following pages, which is supplied pursuant to General Instruction F to Schedule 13E-3, shows the location in the Solicitation Statement/Prospectus that forms a part of the Registration Statement of the information required to be included in response to the items of this Transaction Statement. The information set forth in the Registration Statement, which is attached hereto as Exhibit (d)(1), is incorporated herein by reference in its entirety, and responses to each item herein are qualified in their entirety by such reference. ITEM 16. ADDITIONAL INFORMATION The information contained in the Registration Statement is incorporated herein by reference in its entirety. 1 ITEM 17. MATERIAL TO BE FILED AS EXHIBITS Exhibit (a)(1) Not Applicable. Exhibit (b)(1) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), dated March 31, 1996, which is attached as Appendix B-1 to the Solicitation Statement/Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto. Exhibit (b)(2) Opinion of Lehman Brothers Inc. ("Lehman Brothers"), dated March 31, 1996, which is attached as Appendix B-2 to the Solicitation Statement/Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto. Exhibit (b)(3) Opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), dated March 31, 1996, which is attached as Appendix B-3 to the Solicitation Statement/Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto. Exhibit (b)(4) Presentation to the General Motors Board of Directors Regarding Split-Off of EDS, dated March 31, 1996, given by Merrill Lynch. Exhibit (b)(5) Presentation to the General Motors Board of Directors Concerning the Split-Off of EDS, dated March 31, 1996, given by Morgan Stanley and Lehman Brothers. Exhibit (b)(6) Letter, dated August 2, 1995, from McKinsey & Company, Inc. ("McKinsey"). Exhibit (b)(7) Letter, dated March 1, 1996, from McKinsey. Exhibit (b)(8) Report from McKinsey, dated August 23, 1995. Exhibit (c)(1) Merger Agreement dated as of April 19, 1996 between General Motors and GM Mergeco Corporation ("Mergeco"), which is attached as Appendix A to the Solicitation Statement/ Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto. Exhibit (d)(1) Registration Statement. Exhibit (e)(1) Not Applicable. Exhibit (f)(1) Not Applicable. 2 CROSS REFERENCE SHEET
CAPTION OR LOCATION IN SOLICITATION SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS -------------------------- ----------------------------------- 1.Issuer and Class of Security Subject to the Transaction (a)............................ Introduction; Summary--General Motors (b)............................ Introduction; Class E Common Stock-- Introduction; Solicitation of Written Consent of General Motors Common Stockholders (c)............................ Class E Common Stock--Price Range and Dividends (d)............................ Risk Factors Regarding General Motors after the Split-Off--Loss of Potential Availability of EDS Funds and Assets; Class E Common Stock--Price Range and Dividends;--Dividend Policy;-- Considerations Relating to Multi-Class Common Stock Capital Structure (e)............................ Security Ownership of Certain Beneficial Owners and Management of General Motors and EDS--GM Hourly Plan Special Trust (f)............................ See Annex 1 to this Transaction Statement. 2.Identity and Background......... General Motors, the person filing this Transaction Statement, is the issuer of the class of equity securities which is the subject of the Rule 13e-3 transaction. (a)............................ The persons enumerated in General Instruction C to Schedule 13E-3 (each, an "Instruction C Person") are John F. Smith, Jr., Anne L. Armstrong, John H. Bryan, Thomas E. Everhart, Charles T. Fisher, III, J. Willard Marriott, Jr., Ann D. McLaughlin, Harry J. Pearce, Edmund T. Pratt, Jr., John G. Smale, Louis W. Sullivan, Dennis Weatherstone, Thomas H. Wyman, J. Michael Losh, G. Richard Wagoner, Jr., Louis R. Hughes, J.T. Battenberg, III and C. Michael Armstrong. (b)............................ See Annex 1 to this Transaction Statement. (c)............................ See Annex 1 to this Transaction Statement. (d)............................ See Annex 1 to this Transaction Statement. (e)............................ To the best of General Motors' knowledge, during the past five years, no Instruction C Person has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (f)............................ To the best of General Motors' knowledge, during the past five years, no Instruction C Person has been party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. (g)............................ Each Instruction C Person is a U.S. citizen. 3.Past Contacts, Transactions or Negotiations (a)............................ Not Applicable (b)............................ Incorporation of Certain Documents by Reference; Special Factors--Background of the Split-Off; Security Ownership of Certain Beneficial Owners and Management of General Motors and EDS--GM Hourly Plan Special Trust
3
CAPTION OR LOCATION IN SOLICITATION SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS -------------------------- ----------------------------------- 4.Terms of Transaction (a)............................ The Split-Off; Relationship Between General Motors and EDS--Post Split-Off Arrangements; EDS Capital Stock (b)............................ Not Applicable 5.Plans or Proposals of the Issuer or Affiliate (a)............................ Not Applicable (b)............................ Not Applicable (c)............................ Not Applicable (d)............................ Not Applicable (e)............................ Not Applicable (f)............................ Not Applicable (g)............................ Not Applicable 6.Source and Amounts of Funds or Other Consideration (a)............................ Estimated Fees and Expenses (b)............................ Estimated Fees and Expenses (c)............................ Not Applicable (d)............................ Not Applicable 7.Purpose(s), Alternatives, Reasons and Effects (a)............................ Special Factors--Purposes of the Split- Off (b)............................ Special Factors--Alternatives to the Split-Off (c)............................ Special Factors--Alternatives to the Split-Off;--Background of the Split-Off (d)............................ Special Factors--Effects of the Split- Off;--Certain U.S. Federal Income Tax Considerations 8.Fairness of the Transaction (a)............................ Special Factors--Recommendations of the Capital Stock Committee and the GM Board; Fairness of the Transactions; The Split-Off (b)............................ Special Factors--Recommendations of the Capital Stock Committee and the GM Board; Fairness of the Transactions (c)............................ Special Factors--Requisite Vote for the Transactions; The Split-Off--Merger Agreement; Solicitation of Written Consent of General Motors Common Stockholders
4
CAPTION OR LOCATION IN SOLICITATION SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS -------------------------- ----------------------------------- (d)............................ Special Factors--Requisite Vote for the Transactions (e)............................ Special Factors--Recommendations of the Capital Stock Committee and the GM Board; Fairness of the Transactions; The Split-Off (f)............................ Not Applicable 9.Reports, Opinions, Appraisals and Certain Negotiations (a)............................ Special Factors--Background of the Split- Off;--Fairness Opinions (b)............................ Special Factors--Background of the Split- Off;--Fairness Opinions (c)............................ Special Factors--Background of the Split- Off;--Fairness Opinions; Appendix B-- Fairness Opinions 10.Interest in Securities of the Issuer (a)............................ Security Ownership of Certain Beneficial Owners and Management of General Motors and EDS; See also Annex 1 to this Transaction Statement. (b)............................ See Annex 1 to this Transaction Statement. 11.Contracts, Arrangements or Understandings with Respect to the Issuer's Securities....... The Split-Off--Merger Agreement 12.Present Intention and Recommendation of Certain Persons with Regard to the Transaction (a)............................ Solicitation of Written Consent of General Motors Common Stockholders. Other than as set forth in such section, General Motors has not received any notice of intent with respect to the vote on the Split-Off from any person enumerated in Item 12(a) of Schedule 13E-3. (b)............................ Special Factors--Background of the Split- Off;--Recommendations of the Capital Stock Committee and the GM Board; Fairness of the Transactions; The Split- Off; Solicitation of Written Consent of General Motors Common Stockholders. Other than as set forth in such sections, General Motors has not received any notice that any person enumerated in Item 12(a) of Schedule 13E-3 has made any recommendation with respect to the Split-Off. 13.Other Provisions of the Transaction (a)............................ The Split-Off--No Appraisal Rights (b)............................ Not Applicable (c)............................ Not Applicable
5
CAPTION OR LOCATION IN SOLICITATION SCHEDULE 13E-3 ITEM NUMBER STATEMENT/PROSPECTUS -------------------------- ----------------------------------- 14.Financial Statements (a)............................ Incorporation of Certain Documents By Reference; Summary--Certain Per Share and Other Financial Information--GM Common Stock Historical Per Share Data; --General Motors Ratios of Earnings to Fixed Charges (b)............................ Summary--Certain Per Share and Other Financial Information--GM Common Stock Pro Forma Per Share Data;--General Motors Summary Consolidated Historical and Pro Forma Financial Data; General Motors Unaudited Pro Forma Condensed Consolidated Financial Statements 15.Persons and Assets Employed, Retained or Utilized (a)............................ Special Factors--Background of the Split- Off--Negotiating Teams; Solicitation of Written Consent of General Motors Common Stockholders (b)............................ Solicitation of Written Consent of General Motors Common Stockholders 16.Additional Information.......... The information contained in the Registration Statement is incorporated by reference herein in its entirety. 17.Material to be Filed as Exhibits (a)............................ Not Applicable (b)............................ Fairness opinions of each of Merrill Lynch, Lehman Brothers and Morgan Stanley, which are attached as Appendix B-1, B-2 and B-3, respectively, to the Solicitation Statement/Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto; Presentations to the General Motors Board of Directors given by (i) Merrill Lynch and (ii) Lehman Brothers and Morgan Stanley, which are filed as Exhibits (b)(4) and (b)(5) hereto, respectively; Letters to H. J. Pearce from McKinsey, which are filed as Exhibits (b)(6) and (b)(7) hereto; Report from McKinsey, which is filed as Exhibit (b)(8) hereto (c)............................ Merger Agreement between General Motors and Mergeco, which is attached as Appendix A to the Solicitation Statement/Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto (d)............................ Registration Statement filed as Exhibit (d)(1) hereto (e)............................ Not Applicable (f)............................ Not Applicable
6 ANNEX 1 ITEM 1(F). ISSUER AND CLASS Since January 1, 1994, General Motors has purchased Class E Common Stock on four occasions. On February 22, 1995, General Motors purchased 106,000 shares of Class E Common Stock at a price of $38.3125 per share, which thereby represented the average purchase price for Class E Common Stock purchased by General Motors during the first quarter of 1995. On November 2, 1995, General Motors purchased (i) 25,000 shares of Class E Common Stock at a price of $48.9375 per share and (ii) 25,000 shares of Class E Common Stock at a price of $48.3125 per share, resulting in an average purchase price of $48.625 per share of Class E Common Stock purchased by General Motors during the third quarter of 1995. On April 2, 1996, General Motors purchased 11,073 shares of Class E Common Stock at a price of $53.1875 per share, which thereby represents the average purchase price for Class E Common Stock purchased by General Motors during the second quarter of 1996 through April 15, 1996. ITEM 2(B) THROUGH (D). IDENTITY AND BACKGROUND The following information with respect to principal occupation or employment and name of the corporation or other organization in which such occupation or employment is carried on and in regard to other affiliations has been furnished to General Motors by the Instruction C Persons. In addition to the affiliations mentioned on the following pages, the Instruction C Persons are active in many local and national cultural, charitable, professional, and trade organizations. ANNE L. ARMSTRONG, P.O. Box 1358, Kingsville, Texas 78364; Chairman, Board of Trustees, Center for Strategic and International Studies; former Chairman of the President's Foreign Intelligence Advisory Board and former Ambassador to Great Britain; Joined General Motors Board in 1977; Director of American Express Company, Boise Cascade Corporation, Glaxo-Wellcome and Halliburton Company; Member of the Council on Foreign Relations and Board of Overseers Hoover Institution. JOHN H. BRYAN, Sara Lee Corporation, Three First National Plaza, Chicago, Illinois 60602-4260; Chairman and Chief Executive Officer, Sara Lee Corporation, Chicago; Joined General Motors Board in 1993; Director of Amoco Corporation, First Chicago NBD Corporation and its subsidiary, First National Bank of Chicago; Member of The Business Roundtable and Vice Chairman of The Business Council; Chairman of Catalyst; Trustee of the University of Chicago and the Committee for Economic Development. THOMAS E. EVERHART, California Institute of Technology, Parsons-Oates Hall of Administration, 1201 East California Boulevard, Pasadena, California 91125; President and Professor of Electrical Engineering and Applied Physics, California Institute of Technology, Pasadena; Former Chancellor of University of Illinois, Urbana-Champaign; Joined General Motors Board in 1989; Director of Hewlett-Packard Corporation, Reveo, Inc., Corporation for National Research Initiatives, Community Television of Southern California (KCET); Member of National Academy of Engineering; Vice Chairman, Council on Competitiveness. CHARLES T. FISHER, III, 100 Renaissance Center, Detroit, Michigan 48243; Retired Chairman and President of NBD Bancorp, Inc. and its subsidiary NBD Bank, N.A., 611 Woodward Avenue, Detroit, Michigan 48226-3408; Joined General Motors Board in 1972; Director of Hughes Electronics Corporation, AMR Corporation and its subsidiary American Airlines, Inc., First Chicago NBD Corporation and its subsidiaries First National Bank of Chicago and NBD Bank (Michigan). J. WILLARD MARRIOTT, JR., Marriott International, Inc., One Marriott Drive, Washington, D.C. 20058; Chairman, President and Chief Executive Officer, Marriott International, Inc., Washington, D.C., since October 1993; Chairman, President and Chief Executive Officer, Marriott Corporation (1985-1993); Joined General Motors Board in 1989; Director of Host Marriott Corporation (formerly Marriott Corporation), Host Marriott Services Corporation, Outboard Marine Corporation, and the U.S.-Russia Business Council; Serves on Board of Trustees of National Geographic Society, Georgetown University and the Mayo Foundation; Member of The Business Council and The Business Roundtable. 7 ANN D. MCLAUGHLIN, 4320 Garfield, N.W., Washington, D.C.; Former U.S. Secretary of Labor (1987-1989); Vice Chairman, The Aspen Institute; President, Federal City Council, Washington, D.C. (1990-1995); Joined General Motors Board in 1990; Director of AMR Corporation and its subsidiary American Airlines, Inc., Federal National Mortgage Association, Harman International Industries, Host Marriott Corporation (formerly Marriott Corporation); Kellogg Company, Nordstrom, Potomac Electric Power Company, Sedgwick Group plc, Union Camp Corporation, and Vulcan Materials Company; Trustee of The Public Agenda Foundation, The Conservation Fund and Rand; Board of Overseers, Wharton School of Business, University of Pennsylvania. HARRY J. PEARCE, General Motors Corporation, 3044 West Grand Boulevard, Detroit, Michigan 48202-3091; Vice Chairman, General Motors Board since January 1, 1996, and Executive Vice President, Electronic Data Systems Corporation, Hughes Electronics Corporation, GM Locomotive Group EMD, Allison Transmission Division and Corporate Affairs since 1994, Executive Vice President and General Counsel (1992-1994), Vice President and General Counsel (1987-1992); Joined General Motors in 1985 and its Board in 1996; Member of The President's Council; Director of Hughes Electronics Corporation, Marriott International, Inc.; Member, The Conference Board, Northwestern University School of Law Visiting Committee, and Board of Visitors, United States Air Force Academy; Trustee, Howard University. EDMUND T. PRATT, JR., Astor Lane, Port Washington, New York 11050; Chairman Emeritus and currently director of Pfizer Inc., 253 East 42nd Street, New York, New York 10017; Joined General Motors Board in 1977; Director of Hughes Electronics Corporation, Chase Manhattan Corporation and its subsidiary Chase Manhattan Bank, N.A., International Paper Company, Minerals Technologies Inc. and AEA Investors, Inc.; Member of The Business Council. JOHN G. SMALE, The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201-0599; Chairman of the Executive Committee of General Motors since January 1, 1996, former Chairman, General Motors (November 2, 1992-December 31, 1995); Retired Chairman and Chief Executive of The Procter & Gamble Company; Joined General Motors Board in 1982; Member of the Executive Committee of The Business Council; Board of Governors, The Nature Conservancy; Emeritus Trustee of Kenyon College. JOHN F. SMITH, JR., General Motors Corporation, 3044 West Grand Boulevard, Detroit, Michigan 48202-3091; Chairman, General Motors since January 1, 1996, and Chief Executive Officer and President since November 2, 1992, President (April-November 1992), Vice Chairman, Board of Directors (1990-1992), Executive Vice President, International Operations (1988-1990); Joined General Motors in 1961 and its Board in 1990; Member of The President's Council; Director of Hughes Electronics Corporation, The Procter & Gamble Company; Member of The Business Roundtable, The Business Council, U.S.-Japan Business Council and the Chancellor's Executive Committee of the University of Massachusetts; Member of Board of Overseers of Memorial Sloan-Kettering Cancer Center and Member of Board of Polish-American Enterprise Fund. LOUIS W. SULLIVAN, Morehouse School of Medicine, 720 Westview Drive, S.W., Atlanta, Georgia 30310-1495; President, Morehouse School of Medicine, Atlanta, Georgia, since January 21, 1993; U.S. Secretary of Health and Human Services, 200 Independence, S.W., Washington, D.C. 20201 (1989-1993); Joined General Motors Board in 1993; Director of Georgia Pacific, 3M Corporation, Household International Inc., CIGNA Corporation, Bristol-Myers Squibb Company and Equifax Corporation. DENNIS WEATHERSTONE, J.P. Morgan & Co. Incorporated, 60 Wall Street, 21st Floor, New York, New York 10260; Retired Chairman and currently director of J.P. Morgan & Co. Incorporated and its subsidiary Morgan Guaranty Trust Company of New York; Joined General Motors Board in 1986; Director of L'Air Liquide, Merck & Co., Inc. and the Institute for International Economics; Member of The Business Council; President and trustee of the Royal College of Surgeons Foundation, Inc., New York; Trustee of the Alfred P. Sloan Foundation; Independent member of the Board of Banking Supervision of the Bank of England. THOMAS H. WYMAN, S.G. Warburg & Co., Inc., 277 Park Avenue, New York, New York 10172; Chairman, S.G. Warburg & Co. Inc., New York, and former Chairman, President and Chief Executive Officer, CBS Inc., 8 New York; Joined General Motors Board in 1985; Director of Hughes Electronics Corporation, AT&T, Zeneca Group PLC (London) and United Biscuits (Holdings) plc (Edinburgh); Member of The Business Council; Trustee Emeritus of The Ford Foundation and of The Aspen Institute; Chairman Emeritus of Amherst College. C. MICHAEL ARMSTRONG, Hughes Electronics Corporation, 7200 Hughes Terrace, Los Angeles, California 90045-0066; Chairman and Chief Executive Officer, Hughes Electronics Corporation since March 1992; Senior Vice President, International Business Machines Corporation, Old Orchard Road, Armonk, New York 10504 (1989-March 1992); Member of the President's Council. J. T. BATTENBERG, III, General Motors Corporation, 3044 West Grand Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, General Motors since July 1995 and President, Delphi Automotive Systems since July 1994, Senior Vice President (July 1994-July 1995), Vice President and Group Executive in charge of the Automotive Components Group (May 1992-July 1994), Vice President and Group Executive in charge of the Buick-Oldsmobile-Cadillac Group (June 1988-May 1992); Associated with General Motors since 1961; Member of the President's Council. LOUIS R. HUGHES, General Motors Corporation, 3044 West Grand Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, International Operations, General Motors since November 1992 and President, International Operations since September 1994, President, General Motors Europe and Vice President and Group Executive (April-November 1992), Chairman and Managing Director of Adam Opel AG (March 1989-April 1992); Associated with General Motors since 1966; Member of the President's Council. J. MICHAEL LOSH, General Motors Corporation, 3044 West Grand Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President and Chief Financial Officer, General Motors since July 1994, Group Executive in charge of North American Vehicle Sales, Service, and Marketing (May 1992-July 1994), Vice President and General Manager of Oldsmobile Division (June 1989-May 1992); Associated with General Motors since 1964; Member of the President's Council. G. RICHARD WAGONER, JR., General Motors Corporation, 3044 West Grand Boulevard, Detroit, Michigan, 48202-3091; Executive Vice President, General Motors since November 1992 and President, North American Operations since July 1994, Chief Financial Officer (November 1992-July 1994), President and Managing Director of General Motors do Brasil (July 1991-November 1992), Vice President in charge of finance for General Motors Europe (June 1989-July 1991); Associated with General Motors since 1977; Member of the President's Council. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. ITEM 10(A) The following table sets forth, as of February 29, 1996, beneficial ownership of Class E Common Stock for certain Instruction C Persons and pension and profit-sharing or similar plans of General Motors (excluding its subsidiaries). Ownership of less than one percent of the outstanding shares of Class E Common Stock is indicated by an asterisk. Upon consummation of the Split-Off, each outstanding share of Class E Common Stock will be automatically converted into one share of EDS Common Stock.
SHARES PERCENT BENEFICIALLY OF BENEFICIAL OWNER OWNED CLASS ---------------- ------------ ------- J. T. Battenberg, III............................... 1,208 * J. M. Losh.......................................... 5,659 * General Motors Retirement Plan for Salaried Employees............................. 7,295,169 1.5 General Motors Savings Plans Master Trust........... 14,760,025 3.0 General Motors Canadian Savings-Stock Purchase Program............................................ 100,310 *
9 ITEM 10(B) On various dates between February 9 and April 10, 1996, certain pension and profit-sharing or similar plans of General Motors (excluding its subsidiaries) effected multiple transactions in Class E Common Stock. During such period, the General Motors Savings Plans Master Trust purchased an aggregate amount of approximately 4.5 million shares of Class E Common Stock at prices ranging from $53.75 to $56.595 per share and sold an aggregate amount of approximately 323,000 shares of Class E Common Stock at prices ranging from $53.188 to $57.75 per share. The General Motors Canadian Savings-Stock Purchase Program also purchased within such period an aggregate amount of approximately 8,200 shares of Class E Common Stock at an average price of $56.225 per share and sold an aggregate amount of approximately 680 shares of Class E Common Stock at an average price of $56.6801 per share. In addition, on February 21, 1996, the General Motors Retirement Plan for Salaried Employees sold 15,800 shares of Class E Common Stock at a price of $55.855 per share, and on February 23, 1996, the General Motors Hourly-Rate Employees Pension Plan sold 21,300 shares of Class E Common Stock at the same per share price. Since April 10, 1996, other transactions in Class E Common Stock may have been effected by certain General Motors pension and profit-sharing or similar plans in the ordinary course. 10 After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. General Motors Corporation /s/ John F. Smith, Jr. By: _________________________________ John F. Smith, Jr. Chairman, Chief Executive Officer, and President Dated: April 29, 1996 II-1 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ------------ (a)(1) Not Applicable. (b)(1) Opinion of Merrill Lynch, dated March 31, 1996, which is attached as Appendix B-1 to the Solicitation Statement/Prospectus that forms a part of the Regis- tration Statement filed as Exhibit (d)(1) hereto.* (b)(2) Opinion of Lehman Brothers, dated March 31, 1996, which is attached as Appendix B-2 to the Solicitation Statement/Prospectus that forms a part of the Regis- tration Statement filed as Exhibit (d)(1) hereto.* (b)(3) Opinion of Morgan Stanley, dated March 31, 1996, which is attached as Appendix B-3 to the Solicitation Statement/Prospectus that forms a part of the Regis- tration Statement filed as Exhibit (d)(1) hereto.* (b)(4) Presentation to the General Motors Board of Directors Regarding Split-Off of EDS, dated March 31, 1996, given by Merrill Lynch.* (b)(5) Presentation to the General Motors Board of Directors concerning the Split-Off of EDS, dated March 31, 1996, given by Morgan Stanley and Lehman Brothers.* (b)(6) Letter, dated August 2, 1995, from McKinsey.* (b)(7) Letter, dated March 1, 1996, from McKinsey.* (b)(8) Report from McKinsey dated August 23, 1995. (Filed initially in paper format under cover of Form SE and filed in an EDGAR version herewith; portions of which have been granted confidential treatment pursuant to an order of the Commission).** (c)(1) Merger Agreement dated as of April 19, 1996 between General Motors and Mergeco, which is attached as Ap- pendix A to the Solicitation Statement/Prospectus that forms a part of the Registration Statement filed as Exhibit (d)(1) hereto.* (d)(1) Registration Statement.* (e)(1) Not Applicable. (f)(1) Not Applicable.
- -------- *Filed previously. **Filed herewith. EX-99.(B)(8) 2 MCKINSEY REPORT DATED 8/23/95 CONFIDENTIAL Project Great Lakes August 23, 1995 [Confidential information has been omitted.] Confidential treatment has been requested by General Motors for the indicated portions of this page. - ------------------------------------------------------------------------------- EXECUTIVE SUMMARY General Motors' different businesses create business and capital conflicts that are best resolved by a divestiture of EDS 1. Winning in the growing and attractive IT industry requires a broad range of capabilities that cross traditional industry boundaries with a premium on alliances and efficient deployment of capital to secure leadership positions 2. Competitors from various sectors are aggressively configuring to compete in the IT services sector where they can rapidly become credible players 3. EDS and Hughes are both well positioned to succeed in the IT services industry, each pursuing market from a distinctly different direction 4. The growing overlap of EDS' and Hughes' opportunities will inevitably complicate problems inherent in the General Motors structure--problems foreshadowed by recent conflicts 5. An EDS divestiture is the most effective alternative to address the conflict and strategic overlap 1 - ------------------------------------------------------------------------------- TABLE OF CONTENTS CHAPTER - --------------------------------------------------------------------- 1. Keys to leadership in the IT industry 2. Competitive overview 3. EDS and Hughes positioning 4. Growing overlap between EDS and Hughes 5. Alternatives to resolve conflict 2 1 Keys to leadership in the IT industry Winning in the growing and attractive IT industry will require a broad range of capabilities that cross traditional boundaries with a premium on alliances and efficient deployment of capital to secure leadership positions. (P) The $2.2 trillion IT industry is undergoing significant structural change, creating new value opportunities and rapid growth across a much broader landscape. (P) Capital and partnering flexibility will be critical in this new environment to establish and sustain leadership positions. (P) Winning players will have to be able to quickly discern emerging opportunities in IT and possess or build the capabilities to deliver. 3 SIGNIFICANT STRUCTURAL CHANGE IN THE IT INDUSTRY - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY MARKET FRAMEWORK WORKING DEFINITION ------------------ 1994 revenue $ Billions [Confidential information has been omitted] Source: McKinsey IT Market Database -- see appendix for detailed source list Confidential treatment has been requested by General Motors for the indicated portions of this page. 4A Information technology (IT) has evolved simultaneously in three distinct industries. In media/entertainment, the mediums available have proliferated from the printing press to a vast array of full video/audio alternatives. In communications, the transport mechanisms have grown in utility from mail through telegraph to a host of wireline and wireless technologies. Computers, likewise have grown in capability and speed to offer functionality unimaginable only decades ago. In each of these industries, delivery of the end product requires a combination of hardware, software, and services. In some cases these offerings are bundled and provided by one industry player. In others, the offerings are sold independently, or even created by the end user. For example, the software in home video is created by the user. At any rate, each industry can be segmented into its hardware, software, and services component. In 1994, the market defined as providing hardware, software, and services in computing, communications, and media/entertainment was approximately $2.2 trillion. 4B - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY MARKET SEGMENTATION EXAMPLES -------- [Confidential information has been omitted] Source: McKinsey analysis Confidential treatment has been requested by General Motors for the indicated portions of this page. 5A Typically, players who launch innovative IT solutions initially bundle hardware, software, and services. However, these integrated solutions become unbundled as competitors begin to "cherry pick" discrete components of the solution's value proposition or as powerful customers demand "open systems" architecture. The "breakup" of IBM's business systems into discrete components is an example of this "unbundling" over time; other players saw opportunities to deliver stand-alone hardware, software, and service components at which they could establish a unique value proposition. 5B - ------------------------------------------------------------------------------- DISCONTINUITIES CAUSING IT INDUSTRY CONVERGENCE $ Billions COMMUNICATIONS 683 Analog..................Digital Copper..................Fiber Wireline................Wireless/wireline Regulated...............Open competition Standard data...........Compressed data transmission transmission Synchronous.............Asynchronous (circuit) (shared) MEDIA/ENTERTAINMENT 660 One-way.................Two-way Passive.................Interactive Static..................Dynamic Spectators..............Participants Fixed...................Portable Institutional...........Individual/ institutional COMPUTING 869 Mainframe...............Micro Sequential processing...Parallel Magnetic storage........Optical Hierarchical networks...Distributed Procedural..............Object-oriented Institutional...........Individual/ institutional 6A While the hardware, software, and service offerings are being unbundled, the media/entertainment, communications and computing industries are converging. The convergence is driven by multiple technological discontinuities moving communications, computing, and media/entertainment toward similar end-user functions: digital, networked, interactive, multimedia. As the technology in these industries converges, new innovations in products and services are generated that cross traditional boundaries. Creation of these products and services are often driven by the realization of latent IT market needs, for example voice mail services. 6B - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY MARKET SEGMENTATION WORKING DEFINITION ------------------ [Confidential information has been omitted] Source: McKinsey IT Market Database Confidential treatment has been requested by General Motors for the indicated portions of this page. 7A Over time, the historical industry definitions of media/entertainment, communications, and computing are becoming less important, as the distinction between their products and markets blur. Today's most recognized symbol of this phenomena is the networked multimedia computer. It has the traditional computing capabilities of the standard PC, the communication utilities via modem or area network to transport information, and the versatility to process and deliver media and entertainment in full video, audio, and data formats. The multimedia computer is but one of a host of examples illustrating the convergence in media/entertainment, communications, and computing. 7B STRUCTURAL CHANGES CREATING VALUE OPPORTUNITIES - ------------------------------------------------------------------------------- PROJECTED GROWTH IN CONVERGED IT PRODUCTS AND SERVICES EXAMPLES -------- Revenue CAGR 1994-98, percent [Confidential information has been omitted.] Source: LINK resources; EDS Marketing projections; Dataquest; Veronis, Suhler, & Associates; McKinsey wireless study Confidential treatment has been requested by General Motors for the indicated portions of this page. 8A Products and services created to serve these latent needs by straddling the historical definitions are experiencing disproportionate growth. Examples exist in hardware, software, and services where extraordinary growth in the market for "converged" products can be observed. 8B ------------------------------------------------------------------------------- GROWTH IN COMPETITORS WITH NETWORK CAPABILITIES [ ] Network-focused revenues** Revenue, $ Millions* Total Average size number of of contract contracts $ Millions 1991-92 445 5,512 53 $104 ISSC (IBM) 1993-94 3,110 11,200 46 243 1991-92 AT&T GIS 351 9 39 Professional Services 1993-94 3,160 4,609*** 34 136 50 1991-92 226 3 75 Hughes 1993-94 613 5 123 119 9A * For announced IT contracts signed during the period ** For example, large communications component in the contract (e.g., electronic commerce, EDI, field sales force automation) *** Includes $2.8 billion contract with Delta Source: EDS Marketing--contract tracking database; McKinsey analysis Another illustration of the value created by the convergence of traditional computing and communications sectors is the increasing incorporation of network capabilities by IT service providers in order to "win" large business contracts. For example, in 1991-92, only 8% of ISSC's total revenues were network-centric. By 1993-94, this proportion increased to 28%. Over the same time period, total contract revenues grew 200%, whereas "network-centric" revenues grew 700%. 9B
REQUIREMENTS FOR SUCCESS IN NEW AND MATURE IT MARKETS REQUIREMENTS FOR SUCCESS REQUIREMENTS FOR IN MATURING PRODUCTS/ SUCCESSFUL NEW OFFERING TYPE SERVICE MARKETS INNOVATIONS - -------------------------------------------------------------------------------- Hardware . Low-cost/high-quality . Technical lead or production close follower . Efficient supply and . Close association distribution chains with software or service innovator . Multiuse products (to . Access to reach scale) distribution . Moderate capital . Large capital investment investment Software . Market share/installed . Clear value add base of developers and that overcomes/lowers users customer switching costs . Rapid evolution/response . Creativity-ability to visualize changing customer needs . Broad product line (to "cover" emerging niches) Services . Strong customer . Solutions mindset relationships . Systems design . Partnering/negotiating . Investment in new and development flexibility markets/skills . Systems . Continual integration . Understanding of integration of new opportunities specific industry/specific company needs . Operations . Capital to update operations infrastructure
10A Unbundling is creating a business environment where very different skill sets are required to sustain a competitive advantage in maturing hardware, software, and services. Generally, success in innovation introduction requires an ability to rapidly develop integrated "solutions" which preemptively meet some latent market need; success in maturing markets requires vendors to leverage scale advantages and customer/partner relationships to become the low cost/highest value provider. 10B STRATEGIC IMPLICATIONS OF STRUCTURAL CHANGE - ------------------------------------------------------------------------------- IMPLICATIONS OF CONVERGENCE AND PRODUCT/SERVICE UNBUNDLING [Confidential information has been omitted.] Confidential treatment has been requested by General Motors for the indicated portions of this page. 11A This discussion of the changing IT landscape has focused on two key trends--the convergence across the traditional media/entertainment, communications, and computing sectors, and the unbundling of hardware, software and services components of IT innovations over time. These trends have key strategic implications for competitive strategies in the IT landscape: 1. Unbundling of products/services: Players who introduce innovative solutions should find opportunities either to excel at one or more of the individual components to protect their value proposition once unbundling has occurred, or to secure value in continually creating alternative, innovative solutions. 2. Convergence across industries: Players within a specific traditional industry sector should pursue "cross industry" offerings to leverage their hardware-, software-, and/or service-specific capabilities. 11B - -------------------------------------------------------------------------------- STRATEGIC IMPERATIVES CREATED BY CHANGING ENVIRONMENT ELEMENT OF NEW ENVIRONMENT STRATEGIC IMPERATIVE ------------------------------------------------------ Convergence Convergence of computing, Players must make and communications, and acquisitions, form unbundling media/entertainment is alliances, or develop generating merger and broader skill sets to alliance activity succeed . Cable and Telecom for local access services . Systems integrators and Telecom for IT services . Software and media companies for interactive services Unbundling of Players must offer a product/service offerings distinct value proposition in hardware, software, or services or develop entirely new offerings Other Development of Global reach is a major communications networks, requirement for large changes global customers, and players seeking growth global markets IT services will need Consumer and business to provide distinction blurring; interactive target market becomes the point-to-point individual functionality Nature and size of capital Capital flexibility needs changing as will be required to . New skills are required efficiently capture . Strategic acquisitions high-value are necessary opportunities . Opportunities are becoming more decentralized 12A This convergence across traditional industry sectors and the unbundling of product/service offerings are creating new demands on players in the changing IT landscape. In addition, large players must increasingly cater to "global" customers and target the "individual" customer rather than traditionally defined consumers and businesses. These changes are forcing providers to invest heavily, partner strategically, and build new skill sets. For EDS, this highlights the need to pursue a telecom acquisition or partnership. 12B
- ------------------------------------------------------------------------------------------ CAPTURING INFORMATION TECHNOLOGY OPPORTUNITIES Opportunities appear in industries where traditional New opportunities functional boundaries are blurring, e.g., between computers, communications, and media/entertainment Players with a presence in these industries will have insight into opportunities - there will be option value Vision to being in the right markets Of the players that identify opportunities, only those able to leverage skills rapidly across Broad capabilities functional boundaries, via ownership or alliance, will be able to capture them Opportunity captured by competitor with breadth and vision
13A To successfully capture the value opportunities created by the changes in the IT landscape, players must possess the industry knowledge and insight to recognize the opportunities, and must then be able to act quickly to build or acquire the organizational capabilities required to successfully deliver against the opportunity. 13B 2 Competitive overview Competitors from various sectors are aggressively configuring to compete in the IT services sector where they can rapidly become credible players. (P) The market for IT services is an attractive target for large companies seeking growth opportunities. (P) Many large companies are entering the IT services business from adjacent industries in transition. (P) Opportunities to acquire critical reach and scale quickly are being captured by competitors. (P) Successful players will deploy a broad range of capabilities to capture as much of each customer's spending as possible. 14 ATTRACTIVENESS OF IT SERVICES - -------------------------------------------------------------------------------- ATTRACTIVENESS OF IT SERVICES FOR LARGE COMPANIES Both software and services have attractive growth rates and returns relative to hardware Revenue growth in IT services, encompassing both operations and system design and development, will invite competitors seeking growth opportunities Whereas success in software businesses requires a long-term effort to gain a critical mass of users and developers - in segments of services, competitors quickly achieve scale and credibility necessary to win large contracts 15A The market for IT services is by far the largest component in the IT landscape and is expected to continue growing at the fastest rate. Furthermore, players offering IT services, on average, yield very attractive financial returns. 15B - -------------------------------------------------------------------------------- IT INDUSTRY SEGMENTS 1994-98 PROJECTED GROWTH RATE AND RETURNS % CAGR, ROE WORKING DEFINITION ------------------ [Confidential information has been omitted.] Source: Compustat; annual reports; McKinsey Electronics Practice Database Confidential treatment has been requested by General Motors for the indicated portions of this page. 16A On average, companies in the software and services businesses are much more attractive than companies in the hardware business, with returns on equity (ROE) at 18.4 and 17.4 respectively as compared to hardware's ROE of 12.8. 16B - -------------------------------------------------------------------------------- IT INDUSTRY SEGMENTS 1994-98 PROJECTED TOTAL REVENUE GROWTH WORKING DEFINITION $ Billions ------------------ [Confidential information has been omitted.] Source: Compustat; annual reports; McKinsey Electronics Practice Database 17A Confidential treatment has been requested by General Motors for the indicated portions of this page. Significant growth is expected across the IT landscape, estimated at $ [Confidential information has been omitted] billion in revenue over the next four years. [Confidential information has been omitted] Large companies seeking growth opportunities in the IT industry are likely to be attracted to offering services. 17B Confidential treatment has been requested by General Motors for the indicated portions of this page. - ------------------------------------------------------------------------------- GROWTH DRIVERS IN IT SERVICES . Flatter, more dispersed organizations requiring real-time access to data and networks of collaborators . Increasingly powerful software and data in the hand of the users . Plummeting cost of systems and communications hardware . Development of global communications network that promises accessibility to link all computing, media, and entertainment activities - Disproportionately large spending in second and third world markets to deploy telecommunications infrastructure - Use of wireless, low-cost computing infrastructure, and outsourcing to accelerate catch-up 18A The growth in the services offering type is driven mainly by companies' need to maximize their ability to adopt new technology quickly without having to "write off" an installed base. It is also driven by plummeting hardware costs, an increasingly global infrastructure, and increasing requirements to serve "the individual." 18B
NEW ENTRANTS FROM ADJACENT INDUSTRIES DIVERSE SET OF COMPETITORS TYPE EXAMPLES STRATEGY - -------------------------------------------------------------------------------- Hardware manufacturers IBM, DEC, Olivetti . Enter the IT services market to escape commoditization of "core" business . Leverage large account relationships . Bundle hardware, software, and services Defense/aerospace Hughes, TRW, Boeing . Move to leverage in-house data-center operations and application development skills Telecom Nynex, AT&T, Sprint, . Focus on relationships BT/MCI in the government sectors Large professional CSC, CDC . Focus only on IT services firms services . Concentrate geographically and in vertical sectors Consulting firms Andersen, Coopers, . Leverage the business Booz Allen Hamilton consultancy to offer IT services . Offer business as well as IT expertise Software firms Microsoft, Novell, . Leverage computing Oracle platforms and applications
19A Many large companies are entering the IT services business from adjacent industries in transition, such as computer hardware manufacturing and defense/aerospace. These companies are essentially diversifying their portfolio to protect against "downturns" or stagnant futures in their traditional businesses by leveraging their core capabilities and customer relationships in the services sector. 19B COMPETITORS CAPTURING SCALE AND REACH
- -------------------------------------------------------------------------------- COMPETITORS ACHIEVING GROWTH WITH LARGE CONTRACTS $ Billions, total contract revenue signed CSC ISSC (IBM) AT&T GIS - ----------------------------------- ------------------------------------------ ----------------------------------- [GRAPH APPEARS HERE] [GRAPH APPEARS HERE] [GRAPH APPEARS HERE] 9.5 7.6 General McDonnell Dynamics $3.0 Douglas $3.0 Department of 3.7 Defense $0.7 6.0 3.6 United 3.9 Technologies $3.0 2.8 Delta 1.1 $2.8 1.8 1.0 0.3 0.1 3.5 0.2 0.8 - --------------------- ----------------------- -------------------- 1989 1990 1991 1990 1991 1992 1992 1993 1994
Source: EDS Marketing; McKinsey analysis 20A Many new entrants are achieving scale and credibility in a shorter period of time by winning a few large contracts. For example, ISSC (IBM) increased from $1 billion in 1990 to over $7 billion in 1991, primarily due to a $3 billion deal with McDonnell Douglass and a $3 billion deal with United Technologies. 20B - ------------------------------------------------------------------------------- REVENUE GROWTH FOR SELECTED IT SERVICE PROVIDERS Ratio to 1989 performance 1994 revenue Revenue ratios Competitor $ Billions --------------------------------- 3.5 | | ISSC (IBM) $9.7 | | 3.0 | | | | 2.5 | | | [GRAPH APPEARS HERE] | Andersen Consulting 3.5 1.5 | | CSC** 2.6 | | EDS 10.1 1.0 | | Cap Gemini Sogeti 2.1 | | 0.5 | | | | 0 --------------------------------- 1989 1990 1991 1992 1993 1994 * 1994 revenue negatively impacted by the sale of IBM Federal Systems ** Fiscal year ends March 31; revenues for 1995 were $3.3 Billion Source: EDS Marketing; Forbes; McKinsey analysis 21A Many competitors in IT services have experienced significant growth over the last 5 years. For example, ISSC (IBM) has more than tripled in size. 21B - ------------------------------------------------------------------------------ GLOBAL PRESENCE OF SELECTED IT SERVICE PROVIDERS 1993 integration revenues $ Millions 100%= 1,890 1,870 9,100 467 8,507 500 2,500 --------------------------------------------------------------- Percent North 9 America ------- 49 66 ------ ------- 75 77 Percent outside ------ ------ 85 90 North America 91 ----- ----- 51 34 25 23 15 10 =============================================================== Cap Andersen IBM AT&T GIS EDS Hughes CSC Gemini Consulting Services Sogeti [GRAPH APPEARS HERE] Source: Directory of Systems and Network Integrators; McKinsey analysis 22A IT service providers are positioning for the global market, particularly Cap Gemini Sogeti and Andersen Consulting, both of which obtain a significant portion of their integration service revenues from outside of North America. 22B PLAYERS DEVELOPING BROAD CAPABILITIES - ------------------------------------------------------------------------------- RATIONALE DRIVING BREADTH OF SERVICES Growth in IT service operations is derived from capturing major new accounts Once captured, the logical step for an account team is to bid on as much of the service operations at that account as possible As the general contractors for service operation, the service provider can subcontract the low value elements, retain the high return businesses, and maintain the option to provide all future services 23A In order to both obtain and leverage large customer relationships, IT service providers (especially "operations" service providers) are attempting to deliver as broad an offering as possible. They can then subcontract services which are beyond their existing capabilities or which are low value. 23B - -------------------------------------------------------------------------------- STRATEGIC POSITIONING OF SELECTED IT SERVICES PLAYERS EXAMPLES --------
_________________________________________________________ | | | | . DEC | . Andersen | | . Hughes | . AT&T | | . Loral | . Cap Gemini Sogeti | . Operating scale | . Thomson-CSF | . CSC | . Multi-industry Global | | . EDS | knowledge | | . IBM | | | | | | | | | | Market | | | focus __________________________________________________________ | | | | . Boeing | . Olivetti | | . Nynex | | | . Smaller IT | | | service providers | | Local | . TRW | | | | | | | | | | | | | | _________________________________________________________ Narrow Across the board . Industry participation . Service line breadth Offering focus
Source: McKinsey analysis 24A Accordingly, many IT service providers are expanding their existing capabilities, moving from narrow to "across the board" offerings and from local to global geographic focus. 24B - ------------------------------------------------------------------------------- SIGNIFICANT ALLIANCES FORMED BY IT COMPETITORS EXAMPLES -------- Number of major alliances, January 1993 to present
34 | | | Acquisition/merger | 15 | 20 | 1 17 | 15 Joint venture/alliance | 3 | 19 19 6 | 14 | 9 ____________________________________________________ AT&T Andersen IBM CSC Consulting
Source: Press releases; McKinsey analysis 25A To obtain the skills necessary to succeed, key IT service providers have entered into an increasing number of significant alliances. 25B - ------------------------------------------------------------------------------- WINNING IN IT SERVICES KEY SUCCESS FACTORS IN IT SERVICES ORGANIZATIONAL REQUIREMENTS - ------------------------------------------------------------------------------- . Breadth of service offerings . Active new business development . Global reach . Strategic flexibility . Strategic alliances . Access to debt and equity capital; ability to pool 26A IT service players face "strategic imperatives" which are similar to success requirements across the IT landscape (see p. 12). Accordingly, so that they may leverage opportunities created by the convergence across industries, they must maintain strategic flexibility and meet increased capital requirements. 26B 3 EDS and Hughes'* positioning EDS and Hughes are both well positioned to succeed in the IT services industry, each pursuing the market from a distinctly different direction (P) EDS has defined itself as the service leader in the IT industry, but will have to extend its leadership position by expanding its service breadth and organizational capabilities to succeed. (P) Hughes has positioned itself to leverage its investments in telecommunications, but must seek additional forums to capitalize on its network capabilities and systems design skills in the commercial and consumer services markets to succeed. * This document's description of Hughes' business refers more to its growth in IT services and less to its aspirations in defense and automotive electronics 27 EDS' POSITION - -------------------------------------------------------------------------------- EDS' EVOLUTION . EDS has evolved a breadth of service offerings and is successfully penetrating key vertical markets . EDS is gaining experience with critical emerging technologies (e.g., client-server, wireless, object libraries, network management) . EDS is building global presence . EDS has experienced consistent growth in revenue, net income, and market value 28A EDS has capitalized on unbundling and expanding the services dimensions of IBM's legacy value proposition. EDS has thereby defined itself as the service leader in the IT industry, achieving a record of consistent superior performance. To sustain this position, EDS must continue to pursue new markets (increased breadth, new technological offerings, new geographical markets), while sustaining strong, consistent financial performance. 28B - -------------------------------------------------------------------------------- EDS' POSITION IN VERTICAL IT MARKETS EDS revenue EDS services market* 1994 increases Market $ Millions 1993-94 Percent Financial 1,293 16.5 Manufacturing (excluding services to General 1,136 32.0 Motors) Communications 710 36.4 Insurance 472 0.1 Transportation 441 -1.5 Energy 392 8.8 Other commercial services, and government 1,969 35.4 Total $6,413 17.1% * Excludes significant portions of IT entertainment/media services Source: EDS Internal Financial Reporting document 29A EDS has developed business units to deeply service industry-specific IT needs and is penetrating key vertical markets. The growth in financial, nonautomotive manufacturing, and communications positions EDS well in future growth industries. EDS' growth in other commercial services indicates strength in its strategy of multiple, market-focused groups and SBUs as a means to develop new markets. 29B - -------------------------------------------------------------------------------- EDS' GLOBAL EXPANSION Percent revenue growth 1993-94 1994 revenue* $ Millions Asia/Pacific 86 259 Non-U.S. Americas 81 256 Europe 34 1,304 United States 17 4,594 ----- 6,413 Overall EDS revenue growth = 24 * Excludes General Motors revenue of $3,547 million Source: EDS Finance 30A EDS is also pursuing non-U.S. markets with its industry and, especially, its geographic groups and SBUs, as evidenced by its aggressive growth rates in key emerging markets outside of the U.S. Although the U.S still accounts for 72% of worldwide sales, other regions are growing disproportionately. 30B
- -------------------------------------------------------------------------------------------------------------- EDS' FINANCIAL PERFORMANCE EDS revenue and growth EDS relative stock performance vs. market 10 Revenues 2.0 EDS 8 1.6 S&P 6 [GRAPH APPEARS HERE] 1.2 [GRAPH APPEARS HERE] 500 4 0.8 2 0.4 Net profit 0 0 1990 1991 1992 1993 1994 1990 1991 1992 1993 1994
Source: Value Line; annual reports; McKinsey analysis 31A EDS' investment in new markets has been accomplished thus far in a way that has extended revenue and earnings growth. EDS has maintained strong financial performance over the past five years; its revenues have increased from $6 billion in 1990 to $10 billion in 1994 (14% CAGR), and its stock price increased from 19 5/6 to 38 3/8 at year end of 1990 and 1994 respectively. 31B
- --------------------------------------------------------------------------------------- DISTRIBUTION OF P/E RATIOS FOR COMPANIES WITH $10 TO $15 BILLION REVENUE Number of companies 15 13 12 7 3 2 0 P/E ratios 0-4 4-8 8-12 12-16 16-20 20-24 24-28 Representative Anheueser companies Volvo AB Sprint Busch Merck EDS Coca-Cola
Source: Compustat; McKinsey analysis 32A EDS's market value of $22 billion incorporates the market's expectation that EDS will continue to grow and successfully develop new, nontraditional markets. Its price to earnings ratio is in line with progressive companies such as Merck, Microsoft, and Coca-Cola, which are expected to expand in both product and geographic markets. 32B EDS' BUSINESS MODEL - -------------------------------------------------------------------------------- ILLUSTRATION OF EDS' BUSINESS MODEL ILLUSTRATIVE Decentralized computing/communications applications ------------ [Confidential information has been omitted.] Confidential treatment has been requested by General Motors for the indicated portions of this page. 33A EDS is facing significant changes in its environment as its traditional "mainframe/data center facilities" represent a decreasing portion of total IT needs, and as customer requirements increase in complexity to include telecommunications and media/information. EDS will need to leverage the convergence of the traditional IT major industry sectors by developing capabilities beyond its traditional "computing services" business. This means consummating strategic partnerships in the telecommunications industry and acquiring capabilities complementary to EDS' existing skill set, especially in the area of telecommunications/network "intelligence," or software. To do this successfully will require strategic flexibility, as well as capital to form alliances/acquisitions as they become necessary. 33B - -------------------------------------------------------------------------------- INCREASED CAPITAL REQUIRED TO SUPPORT EDS' REVENUES Cumulative invested capital $ Billions Revenue dollar per total invested capital* 5 ______________________________ 6 ______________________________ | | | | 4 | | 5 | | | | | | 3 | | 4 | | | | | | 2 | [GRAPH APPEARS HERE] | 3 | [GRAPH APPEARS HERE] | | | | | 1 | | 2 | | | | | | 0 | | 1 | | | | | | ______________________________ 0 ______________________________ 1989 1990 1991 1992 1993 1994 1989 1990 1991 1992 1993 1994 * Cumulative capital (not capital invested that year) Source: Annual reports; McKinsey analysis 34A EDS' traditional economic formula is changing as customers' requirements change. In recent years, although cumulative invested capital has increased, each dollar of invested capital is becoming less powerful in generating revenue. In other words, EDS' capital intensity is increasing and is expected to continue along this trend. 34B - -------------------------------------------------------------------------------- EDS RETURN ON INVESTED CAPITAL [ ] Value creation Percent Return on invested capital (ROIC) [Confidential information has been omitted.] Weighted average cost of capital (WACC) 1989 1990 1991 1992 1993 1994 Source: EDS annual reports; McKinsey analysis Confidential treatment has been requested by General Motors for the indicated portions of this page. 35A As a result of increasing capital intensity, EDS value creation -- as measured by return on invested capital (ROIC) minus the weighted average cost of capital (WACC) -- has been declining significantly in the past five years. While the most recent performance is still well in excess of the cost of capital, EDS will need to increase the care it takes in evaluating deployment of increasing capi- tal investment. 35B - -------------------------------------------------------------------------------- EDS CAPITAL REQUIREMENTS FOR NEW CONTRACTS Percent of first full-period revenue [Confidential information has been omitted.] Total capital Nonequity capital Loan or equity capital ____________________________________________________ 1989-91 1993-94* contracts contracts Contract Total revenue Contract Total revenue [Confidential information has been omitted.] * Analysis excludes fourth quarter of 1994 Source: EDS Finance; contracts database Confidential treatment has been requested by General Motors for the indicated portions of this page. 36A EDS' high-growth, high margin opportunities are likely to be more asset intensive than its typical 10-year systems management deals. Historically, major up-front investment in only computing assets was required. Today, not only is the up-front investment larger--reflecting the increasing IT and telecom/network equipment installed base of virtually every sector--but the contracts now require the deployment of new solutions--hardware, software, and service infrastructure. 36B - -------------------------------------------------------------------------------- EDS' DEPLOYMENT OF TECHNICAL ASSETS $ Millions CAGR 1990-94 Percent [Confidential information has been omitted.] Technical asset invest- ment moving Nonleveraged to the "point technical assets of attack" Technical assets in infrastructure 1990 1991 1992 1993 1994 Source: EDS Consulting Confidential treatment has been requested by General Motors for the indicated portions of this page. 37A Today's client-server solutions contain significant hardware and software resident at the local-area network. Therefore, EDS' deployment of technical assets is trending away from centralized/leveraged technical assets in its infrastructure toward nonleveraged assets for specific customers. This transition requires that EDS develop new skills to effectively manage these investments "at the point of attack." 37B - -------------------------------------------------------------------------------- EDS FINANCE COMMITTEE CAPITAL APPROVALS 1994 $ Millions () = Number of investments approved [ ] Decentralized investments made at the business unit level 1994 capital approvals Total = [Confidential information has been omitted.] Software and services infrastructure [Confidential information has been omitted.] Facilities infrastructure [Confidential information has been omitted.] [Confidential information has been omitted.] Joint ventures and acquisitions [Confidential information has been omitted.] Customer contract support [Confidential information has been omitted.] [Confidential information has been omitted.] Source: EDS Finance; McKinsey analysis Confidential treatment has been requested by General Motors for the indicated portions of this page. 38A [Confidential information has been omitted] 38B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ------------------------------------------------------------------------------------------------------------------------------ EDS' STRATEGIC IMPERATIVE EDS' objectives New business formula requirements - ------------------------------------------------------------------------------------------------------------------------------ . Take advantage of the convergence of telecom Capital and computing in delivering advantaged . Major investments will be required (e.g., integrated solutions acquisitions, distribution channels to consumer markets), burdening the increased capital load . Lead the transformation of large enterprise required to support the business computing/communications by building capabilities to drive toward enterprise client- . Many of these investments will be "at the point of server attack" (rather than back-loaded infrastructure) . Take the leadership role in enabling consumers' . Attracting and retaining scarce, high-talent adoption of information age products and resources will become more critical, suggesting a services higher reliance on strong performance management systems and creative, . Acquire and utilize information technologies and nontraditional incentives processes to assist clients in optimizing alignment of business objectives and technology Organization partnering . EDS will need top tier partners in the right industry sectors and segments . EDS will need to add major new businesses to its portfolio requiring significant investment - Telecommunications - Consulting - Content/information services
39A EDS has the opportunity to capture significant value in the changing IT landscape by taking advantage of trends such as the convergence of telecom and computing services, the emergence of client-server platforms, and the increasing importance of the "individual" consumer. These objectives create new business formula requirements, such as the need for an increasing level of capital, creative incentive programs, and partnering capabilities. 39B HUGHES' POSITION - ------------------------------------------------------------------------------- HUGHES' IT SERVICES EVOLUTION OUTSIDE DEFENSE . Hughes is developing distinctive IT systems and related businesses that are complemented by its network assets . Hughes has reduced its dependence on government contracts . Hughes has successfully transferred technology from its defense systems businesses into commercial network systems and satellites - Satellite construction and launch - Digital communication technology (TDMA) . Hughes has also experienced significant growth in revenue, net income, and market value 40A Hughes has evolved away from its dependence on defense electronics by leveraging its technical assets and system design/development know-how into other commercial businesses. Hughes has maintained strong financial performance and is positioning itself to sustain success within the IT landscape. 40B
- ---------------------------------------------------------------------------------------------------------------- TOTAL WORLDWIDE DEFENSE SPENDING $ Billions 1,200 ---------------------------------------------------------------- | | 1,100 - | | | -5.1% CAGR in 1,000 - | defense spending | | 1989 to 1993 900 - [GRAPH APPEARS HERE] | | | 800 - | | | 0 | | ---------------------------------------------------------------- 1989 1990 1991 1992 1993 Source: U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers; McKinsey analysis
41A A significant external influence on Hughes' business is the decline in worldwide defense spending. From 1989 to 1993, this spending decreased from $1,070 to $868 billion, a 5% annual decline. 41B
- ---------------------------------------------------------------------------------------------- HUGHES' REVENUE BY MARKET SEGMENT [_] Focus of this document $ Billions 1991-94 CAGR Percent [GRAPH APPEARS HERE] 14.1 7 13.5 12.3 11.4 11.7 11.5 2.9 3.2 10 Other* 2.4 2.4 2.4 2.7 4.5 5.3 13 Automotive 3.5 3.8 3.7 4.0 Defense 5.5 5.5 5.5 5.5 6.1 5.6 1 ----------------------------------------------------------------- 1989 1990 1991 1992 1993 1994 * Other includes telecommunications and space and commercial technologies Source: Hughes Annual Report; McKinsey analysis
42A Hughes has mitigated the impact of a reduction in defense spending by increasing its focus on other segments, experiencing growth in telecommunications and space segments in particular. Hughes' defense revenues as a percent of total revenues declined from 48 percent in 1989 to 40 percent in 1994. 42B
- ------------------------------------------------------------------------------------------------------------------------------------ HUGHES' OVERVIEW [ ] Focus of this document --------------- -------- --------------- ---------- ----------- Segment Telecommuni- DirecTV Network Systems Automotive Defense cations & Space Electronics Electronics --------------- -------- --------------- ----------- ----------- Market/ . Satellite design and . Direct video/audio . Fixed wireless and . Driver systems . Missile systems products construction broadcasting digital cellular (e.g., instrument . Airborne radar . Satellite ownership . DirecPC digital communications panel) . Electro-optical systems and operation satellite transmission . Wide area private . Power train . Surface and air defense business networks (environmental, . Training and simulation . Local area networks performance) . Guidance and control . Telecommunications . Vehicle systems systems equipment (safety) Apparent . Share dominance . First-mover with . Share dominance . Growth strategy (40% of commercial rapid growth (10 (70% share of private - Electronic content . Participate in satellites) million subscribers business networks) per vehicle industry . Invest in tight by 2000) - Geographic consolidation to capacity market . Breakeven late 1996 presence grow share - Non-General . "Invest or divest" Motors market . Cost reduction . Double digit cost . Expand reduction international sales ------------------------------------------------------------------------- 1994 revenue* $2.5 $5.3 $5.6 $ Billions Operating profit margin 10.8% 15.2% 12.3% Percent (including losses in DirecTV) 1990-94 CAGR 11.6% 8.9% 0.2% Percent * The Commercial Technologies Group, with 1994 losses of $114 million on sales of $713 million, has been reorganized; businesses are now under Telecommunications & Space and Defense Electronics Source: Hughes Annual Report
43A Hughes has developed high growth businesses such as DirecTV which leverage its network assets. These opportunity areas help insulate Hughes against potential downturns in its core businesses, such as defense and automotive electronics. 43B
- ----------------------------------------------------------------------------------------------------------------------- HUGHES' FINANCIAL PERFORMANCE Hughes revenue and profit growth Hughes stock performance vs. market 15 ---------------------------------------- 2.5 ---------------------------------------- Revenues 2.0 - Hughes 10 - [GRAPH APPEARS HERE] 1.5 - [GRAPH APPEARS HERE] S&P 1.0 - 5 - 0.5 - Net profit 0 ---------------------------------------- 0 ---------------------------------------- 1990 1991 1992 1993 1994 1990 1991 1992 1993 1994 Source: Value Line; annual reports; McKinsey analysis
44A Hughes has maintained strong financial performance over the past 5 years, with an increase in revenues from $11.7 billion in 1990 to $14.1 billion in 1994 and a net profit margin increase from 6.1 percent in 1990 to 7.7 percent in 1994. 44B HUGHES' BUSINESS MODEL - -------------------------------------------------------------------------------- ILLUSTRATION OF HUGHES' BUSINESS MODEL EVOLUTION DIRECTV/DIRECPC EXAMPLE Commercial communications applications ----------------------- [Confidential information has been omitted.] Confidential treatment has been requested by General Motors for the indicated portions of this page. 45A Hughes will need to continue to leverage its strengths in specific technologies to design and develop new applications for the commercial segment. Increases in capital spending and formation of alliances in new industries will likely be required. 45B - ------------------------------------------------------------------------------- HUGHES' EVOLVING STRATEGY Moving beyond the defense industry... "For [Hughes], the challenge became refocusing the company from traditional defense markets to a more commercial orientation." General Motors 1993 Annual Report "We [Hughes] cannot downsize our way to market leadership, nor can we borrow our way to growth. We are responding to changes around the world...by exploring new commercial applications of our technologies without abandoning our base in the defense industry." Hughes 1993 Annual Report ...broadening the scope of business "What we are creating is a global information network". Chairman and CEO, [Hughes] Forbes, August 1, 1994 For more than a quarter of a century, [Hughes] has invested in building the resources and expertise required to design, develop, and operate efficient and effective large-scale information systems." Hughes Department of Defense proposal "We [Hughes] intend to make this new company a growth company through prudent acquisitions, intelligent investment in new product development, and changes in our cost structure and approach to business." Hughes' Defense Systems Source: Annual reports; public literature 46A Hughes is realizing its challenge in reducing its dependence on defense spending and government contracts and has acknowledged the need to broaden the scope of its business. This entails not only a rethinking of the traditional business in defense and automotive electronics, but also a more proactive positioning of Hughes as a global information system solutions provider. 46B - ------------------------------------------------------------------------------- HUGHES' SERVICE EXPANSION Hughes has invested over $2 billion in telecommunications and space since 1987. The heavy investment will continue -- another $600 million for mobile cellular services, $600 million for a new data transmission service, and $1 billion for additional satellites to serve TV. Forbes, August 1, 1994 "[Hughes] is also steadily progressing in developing its business in satellite-based private business networks, digital cellular communications, and fixed wireless communications." 1993 General Motors Annual Report Source: Annual reports; Forbes 47A Currently, Hughes dominates the commercial satellite business, having built 40 percent of the commercial satellites in service and providing 30 percent of the world's commercial satellite service needs, and is aggressively pursuing other wireless services. 47B - ------------------------------------------------------------------------------- HUGHES' LIKELY TARGET MARKETS* EXAMPLES -------- [Confidential information has been omitted.] Confidential treatment has been requested by General Motors for the indicated portions of this page. 48A [Confidential information has been omitted] 48B Confidential treatment has been requested by General Motors for the indicated portions of this page. - -------------------------------------------------------------------------------- HUGHES' EARLY COMMERCIAL MARKET INITIATIVES* Transportation "Hughes Airport Systems is...dedicated to providing integrated systems solutions for cost effective airport modernizations." Hughes 'Airport Systems' brochure, July 1993 "Hughes Airport Systems offers technical solutions that are tailored to the unique business needs of each airport customer." Hughes 'Airport Systems' brochure, July 1993 "Hughes Airport Systems offers complete systems engineering and consulting services, from preliminary studies, concept definition, and master plans through systems integration and verification." Hughes 'Airport Systems' brochure, July 1993 Health care** Hughes, a world leader in providing advanced telecommunication and large scale information systems, is applying its expertise to deploy the information infrastructure required to support the rapidly changing healthcare industry." Hughes Press Release, September 21, 1994 * Outside defense and automotive electronics ** As of June 1995, Hughes planned not to pursue the current state of health care opportunities at this time Source: Press release; Hughes brochures 49A [Confidential information has been omitted] 49B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ---------------------------------------------------------------------------------------------- CAPITAL NEEDS FOR HUGHES' COMMUNICATIONS BUSINESSES* - 1995 THROUGH 1999 $ Millions [Confidential information has been omitted.] - ---------------------------------------------------------------------------------------------- DirecTV Mobile Satellite Fixed Total Other cellular services telephone/ investment strategic (HCI) data initiatives transmission (e.g., Spaceway, International DBS) * Excludes capital needs for the defense and automotive electronics businesses Source: Hughes Financial Planning
50A Confidential treatment has been requested by General Motors for the indicated portions of this page. As Hughes pursues strategic market development initiatives, major investments to build capabilities and advanced solutions will likely be required. There are early indications that Hughes' capital required to realize these new business opportunities will be substantial. 50B - ------------------------------------------------------------------------------- HUGHES' STRATEGIC IMPERATIVE* Hughes' apparent objectives New business formula requirements - ------------------------------------------ --------------------------------- [Confidential information has been omitted.] *Outside defense and automotive electronics Source: McKinsey analysis of published information 51A Confidential treatment has been requested by General Motors for the indicated portions of this page. [Confidential information has been omitted] 51B Confidential treatment has been requested by General Motors for the indicated portions of this page. 4 Growing overlap between EDS and Hughes As EDS and Hughes pursue their respective strategies, their growing overlap will inevitably complicate problems inherent in the General Motors structure - problems foreshadowed by recent conflicts. (P) Overlaps between EDS and Hughes are emerging and will likely grow as the companies and the competitive landscape evolve. (P) EDS' and Hughes' formal affiliation within the General Motors structure will adversely affect business development, limiting partnering and customer opportunities in particular. (P) EDS and Hughes may also encounter handicaps in deploying significant capital investment at the business unit level. (P) The General Motors ownership structure complicates resolution of the overlaps. 52
- ------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF KEY AREAS OF CONCERN Concern Description - ------------------------------------------------------------- --------------------------------------------------------------- Effects of EDS and Hughes affiliation on business development . Customer conflicts . EDS (and in the future, potentially, Hughes) cannot form relationships with some key customers because of perceived conflict between the customer and the other businesses within the General Motors structure . Partnering conflicts (business conflicts) . EDS and Hughes are disadvantaged in forming relationships with strategic partners because of perceived conflict between the customer and the other business within the General Motors structure . Bidding restrictions . EDS and Hughes may earn lower returns in potential contracts due to their affiliation, e.g. - Customers may allow only one bid per corporate entity - Customer policies sometimes prohibit fee-on-fee contracts within one corporate entity Effects of ownership structure on capital deployment . Obstructed strategic transactions . Inability to consummate major mergers because of potential partner's unwillingness to accept letter stock . Interference in the timing of negotiations/disclosures because of capital activities of General Motors . Impeded capital-related decision processes . Inherent delays or neglect in review processes of large numbers of capital requests with decentralized business cases . Friction with General Motors in implementing stock-based incentives plan supportive of effectively managing SBU-level capital investment
53A EDS' and Hughes' evolving strategies, as well as some case examples in recent history, are introducing conflicts which are inherent in their affiliation within the General Motors structure. These problems are focused around two key areas of concern: 1. Negative impact of Hughes and EDS affiliation on business development, specifically, each company's ability to effectively attract customers, consummate partnerships, and bid for contracts. 2. Negative impact of General Motors ownership structure on capital deployment, specifically, the impact of General Motors ownership on alliance/acquisition attractiveness and flexibility, and the potential for impeded capital-related decisions (e.g., incentive plans, capital requests). 53B OVERLAP EMERGING - -------------------------------------------------------------------------------- EXAMPLE OF OVERLAP IN EDS' AND HUGHES' BUSINESS MODELS [Confidential information has been omitted.] Confidential treatment has been requested by General Motors for the indicated portions of this page. 54A As EDS attempts to exploit the industry convergence of IT services and Hughes attempts to leverage its network assets and capabilities to introduce "innovative solutions" which integrate hardware, software, and services, it is likely that they will overlap and compete in certain markets. 54B - -------------------------------------------------------------------------------- RATIONALE FOR CUSTOMER/PARTNER CONCERNS ABOUT EDS/HUGHES . Customers perceive management involvement across General Motors' companies . Customers perceive that supporting EDS provides financial support to Hughes and General Motors . Relationship with EDS, and therefore General Motors and Hughes, means giving EDS full access to company data - that is at the center of the customers' knowledge base and economic lifeline - Customer lists/customer information - Financial/performance data - Technology strategies . Potential customers who are competitors of General Motors do not want to signal dependence on a rival to the market Source: Interviews; IT practice experience 55A It is logical that competitors of General Motors and Hughes would seek alternatives to EDS as a service provider or partner. Business with a General Motors' company is perceived as conflicting with the strategic and financial interests of these companies. 55B - -------------------------------------------------------------------------------- EDS PERCEPTION OF POTENTIAL COMPETITIVE OVERLAP [_] EDS [_] Hughes [_] EDS/Hughes [CHART APPEARS HERE] [Confidential information has been omitted.]
- ----------------------------------------------------------------------------------------------------------------------------------- Consumer/Individual Business - ----------------------------------------------------------------------------------------------------------------------------------- Financial services | Electronic funds transfer EDI | Manufacturing/retail | Smart cards Information processing | | Kiosks | Insurance/health care | PC consumer transactions Video conferencing | Government | PC/TV consumer information systems Artificial intelligence | Transportation | Electronic tracking (e.g., vehicle location) Decision support | Communications | Interactive PC CAD/CAM | Energy/utilities | Interactive TV/video Robotics | | Simulation | | Data mining | | Electronic tracking (e.g., virtual inventory) | | Imaging | | Civil engineering services | | Satellite launches - ------------------------------------------------------------------------------------------------------------------------------------
Source: EDS Marketing Confidential treatment has been requested by General Motors for the indicated portions of this page. 56A According to the perspective of EDS' management, EDS and Hughes will be overlapping in multiple markets. As each penetrates vertical markets, the likelihood of conflict over certain customer accounts increases. 56B
- ------------------------------------------------------------------------------------------------------------------------------------ ILLUSTRATION OF EDS AND HUGHES COMPETITION ILLUSTRATIVE EXAMPLE Hotel reservation systems value chain ----------------------- [X] EDS customers threatened by development of direct to home reservation system EDS service offering Potential Hughes service offering Third-party systems EDS systems development development and management [GRAPH APPEARS HERE] [GRAPH APPEARS HERE] Hughes satellite information exchange and [X] IXC information exchange systems management [X] Hotel consortium [X] System operator [X] Travel agent End-user (by DirecPC) End-user (by phone)
57A The fact that EDS and Hughes are competing in a number of the same market spaces, and even for specific contracts, is not inherently negative. Many companies have effectively handled the confusion or suspicion that customers may feel when they are confronted with two affiliated companies who compete in the same market space. However, major complications arise when EDS and Hughes - both seen as part of the General Motors family - attempt to serve different players within the same value chain, or when they attempt to serve different value chains entirely. Hughes' direct-to-customer satellite-based communications offerings could threaten many of EDS' primary target customers and partners who are playing the intermediary role and/or have significant investment in land-line based solutions. One example of the latter is in hotel reservation systems. 57B
- ----------------------------------------------------------------------------------------------------------------------------------- CUSTOMER CONFLICTS [Confidential information has been omitted.] CASE EXAMPLE ------------ OPPORTUNITY [Confidential information has been omitted.] SEQUENCE OF EVENTS [Confidential information has been omitted.] Potential impact [Confidential information has been omitted.] COMPETITIVE OVERLAP AND STRATEGIC IMPACT [Confidential information has been omitted.] Source: EDS Personal Communications Division
Confidential treatment has been requested by General Motors for the indicated portions of this page. 58A [Confidential information has been omitted] 58B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ------------------------------------------------------------------------------------------------------------------------------------ THE TELECOMMUNICATIONS CONFLICT [ ] Hughes hardware or service market [GRAPH APPEARS HERE] Cellular Other phones phones and fax ------------------------------------------------------------------------ Access devices PC TV Stereo ------------------------------------------------------------------------ EDS needs to partner with major players in key areas of Wireless Bypass Private line DBS* telecommunications ------------------------------------------------------------------------ Hughes competes in key Local loop service Local exchange carriers CATV segments of the telecommunications industry ------------------------------------------------------------------------ Independent satellite services Hughes offers high value ------------------------------------------------------------------------ communications services to Long distance relatively small niches service IXCs ------------------------------------------------------------------------ * DBS (Direct Broadcast Satellites), although not purely local services, compete for local service
59A To leverage the convergence across IT services, EDS needs to partner with major players in key areas of telecommunications. Because Hughes competes in segments of the telecommunications industry, some parties are not interested in partnering with EDS. However, Hughes possesses only niche wireless capabilities (via network communications). 59B - ------------------------------------------------------------------------------- HUGHES' ABILITY TO SATISFY EDS' TELECOMMUNICATIONS NEEDS [ ] Currently served $ Millions per year by Hughes ($[Confidential information has been omitted.] million/year [Confidential information has been omitted.] Function Rationale Source: Interviews Confidential treatment has been requested by General Motors for the indicated portions of this page. 60A Hughes' niche capabilities, as strong as they are, would satisfy only a fraction of the growing telecommunications needs of EDS' lines of business. Essentially, a merger with Hughes would block EDS from pursuing one of its key strategic imperatives. 60B
- ----------------------------------------------------------------------------------------------------------------------------------- PARTNERING CONFLICTS [Confidential information has been omitted] CASE EXAMPLE -------------- Opportunity [Confidential information has been omitted] Potential impact Sequence of events [Confidential information has been omitted] [Confidential information has been omitted] Competitive overlap and strategic impact [Confidential information has been omitted] Source: EDS Personal Communications Division
Confidential treatment has been requested by General Motors for the indicated portions of this page. 61A [Confidential information has been omitted] 61B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ----------------------------------------------------------------------------------------------------------------------------------- CUSTOMER CONFLICTS [Confidential information has been omitted] CASE EXAMPLE -------------- Opportunity [Confidential information has been omitted] Sequence of events Potential impact [Confidential information has been omitted] [Confidential information has been omitted] Competitive overlap and strategic impact [Confidential information has been omitted] Source: EDS Personal Communications Division
Confidential treatment has been requested by General Motors for the indicated portions of this page. 62A [Confidential information has been omitted] 62B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ------------------------------------------------------------------------------------------------------------------------------------ BIDDING RESTRICTIONS [Confidential information has been omitted] CASE EXAMPLE -------------- Opportunity [Confidential information has been omitted] Sequence of events [Confidential information has been omitted] Potential impact [Confidential information has been omitted]. Competitive overlap and strategic impact [Confidential information has been omitted] Source: EDS Government Services
Confidential treatment has been requested by General Motors for the indicated portions of this page. 63A The [Confidential information has been omitted] illustrates a different competitive impediment which results from EDS' and Hughes' affiliation. Because the government prevents "fee-on-fee" pricing (corporate affiliates putting a mark-up on a single entity's costs twice), the primary bidder in this case would be unable to obtain a profit by subcontracting with the other affiliate. However, it would be able to include a profit on any other subcontracting company, thus hindering the affiliate's flexibility in cooperating on this project. 63B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ------------------------------------------------------------------------------------------------------------------------------------ BIDDING RESTRICTIONS [Confidential information has been omitted.] CASE EXAMPLE ------------ Opportunity [Confidential information has been omitted.] Sequence of events Potential impact [Confidential information has been omitted.] [Confidential information has been omitted.] Competitive overlap and strategic impact [Confidential information has been omitted.] Source: EDS Military Systems
Confidential treatment has been requested by General Motors for the indicated portions of this page. 64A A similar deterrent is illustrated in the [Confidential information has been omitted] example. Because the government limits the number of bids which a company is allowed to make on a specific project, EDS and Hughes are disadvantaged. Two contracts were to be awarded, under the condition that no more than two bids be submitted by the same company. In this case, EDS obtained a special exemption to have EDS and Hughes viewed as separate companies. However, this illustrates the point that in future contracts, one of the two companies may be excluded due to the other's participation. 64B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ------------------------------------------------------------------------------------------------------------------------------------ [Confidential information has been omitted.] CASE EXAMPLE ------------ Opportunity [Confidential information has been omitted.] Sequence of events [Confidential information has been omitted.] Competitive overlap and strategic impact [Confidential information has been omitted.] * By June 1995, Hughes planned not to pursue [confidential information has been omitted] market opportunities at this time Source: EDS Healthcare SBU
Confidential treatment has been requested by General Motors for the indicated portions of this page. 65A [Confidential information has been omitted] [Confidential information has been omitted] The strategic issues associated with this emerging market niche opportunity center on both the economics of competing bidding efforts and lost profits for one of the players as well as the lost opportunities for EDS to gain capabilities to leverage in future markets (even more important now that Hughes has de-emphasized its [Confidential information has been omitted] industry activities). 65B Confidential treatment has been requested by General Motors for the indicated portions of this page.
- ------------------------------------------------------------------------------------------------------------------------------------ POTENTIAL COMPETITION BETWEEN EDS AND HUGHES ESTIMATE ---------- $ Millions, new EDS contract revenues in 1994* [ ] Contracts for which Hughes could have been a viable competitor [Confidential information has been omitted.] Estimates of future contract overlap by both companies are in the multibillion dollar range - -------------------------------------------------------------------------------------------- Manufac- International State and Communi- Transpor- Finance turing local cations tation government** * Excludes contract revenues gained through acquisitions or joint ventures ** Includes healthcare contracts (e.g., Medicaid) Source: EDS contract database; McKinsey analysis
Confidential treatment has been requested by General Motors for the indicated portions of this page. 66A As the companies become more ambitious in new markets, they may find even more overlap. For example, in 1994 alone, contracts amounting to approximately $ [Confidential information has been omitted] in total revenue for EDS-- [Confidential information has been omitted] % of the value of contracts won by EDS--were in market segments in which Hughes could potentially be a viable competitor (as it pursues opportunities to leverage its skills in current and "new" markets). The potential contract overlaps are early signs that Hughes and EDS will more frequently be servicing the same markets. 66B Confidential treatment has been requested by General Motors for the indicated portions of this page. - ------------------------------------------------------------------------------- EDS CUSTOMER CONFLICTS IN AUTOMOTIVE
MARKET KNOWN CONFLICTS* - -------------------------------------------------------------------------------- The automotive industry | [Confidential information has been omitted.] spends $39 billion per | year on IT. This | includes parts supplies | and others who affiliate| with major automotive | companies | | | | | | | | | | | | |
* Conflicts are not always transparent due to the fact that: 1) customers are not always explicit with their reservations; and 2) as a general rule, prospects are given lower priority by EDS in the sales and marketing process if the threat of competition from Hughes or General Motors is expected to negatively impact EDS's chance of winning business Source: EDS MIG SBU; EDS FIG SBU; "DP Budget"--April 1994 Confidential treatment has been requested by General Motors for the indicated portions of this page. 67A EDS' affiliation with General Motors and Hughes limits EDS' options in providing IT services to the automotive industry. Many potential customers compete directly with General Motors or are in some way aligned with General Motors' competitors. 67B - ------------------------------------------------------------------------------- EDS CUSTOMER CONFLICTS IN AEROSPACE
MARKET KNOWN CONFLICTS* - -------------------------------------------------------------------------------- The aerospace industry | [Confidential information has been omitted.] spends $7 billion on IT | per year | | | | | | | |
* Conflicts are not always transparent due to the fact that: 1) customers are not always explicit with their reservations; and 2) as a general rule, prospects are disqualified in the EDS sales and marketing process if the threat of competition from Hughes or General Motors is expected to negatively impact EDS's chance of winning business Source: EDS MIG SBU; EDS FIG SBU; "DP Budget"--April 1994 Confidential treatment has been requested by General Motors for the indicated portions of this page. 68A Similarly, EDS has lost business in the aerospace industry due to its affiliation with General Motors. 68B - ------------------------------------------------------------------------------- EDS CUSTOMER CONFLICTS IN FINANCIAL MARKETS
MARKET KNOWN CONFLICTS* - -------------------------------------------------------------------------------- The consumer/commercial financial services market currently spends $3 billion annually on IT services. This is [Confidential information has been omitted.] expected to grow rapidly as new services are offered
* Conflicts are not always transparent due to the fact that: 1) customers are not always explicit with their reservations; and 2) as a general rule, prospects are disqualified in the EDS sales and marketing process if the threat of competition from Hughes or General Motors is expected to negatively impact EDS's chance of winning business Source: EDS MIG SBU; EDS FIG SBU; "DP Budget"--April 1994 Confidential treatment has been requested by General Motors for the indicated portions of this page. 69A EDS customer conflicts in financial services have been limited to date. However, this market is an attractive market and is expected to grow rapidly. 69B CAPITAL AND STRATEGY DEPLOYMENT HANDICAPS
- ----------------------------------------------------------------------------------------------------------------------------------- EDS' STRATEGIC BARRIERS CASE EXAMPLE -------------------- POTENTIAL STRATEGIC PARTNER OPPORTUNITY COMPLICATION - --------------------------------------------------------------------------------------------------------- EDS has been unable to participate in critical strategic alliances [Confidential information has been omitted.] . This pattern will likely continue if there is no change in ownership structure
Confidential treatment has been requested by General Motors for the indicated portions of this page. 70A The second type of conflict which EDS and Hughes experience because of their relationship within the General Motors structure concerns effective capital deployment and strategic flexibility. In recent history, EDS has been unable to consummate major mergers, including strategically important telecom alliances, due to potential partners' unwillingness to accept Class E stock and General Motors' inability or unwillingness to finance because of impact on their pooled balance sheet. This pattern is expected to continue unless there are changes in EDS' ownership structure. 70B OWNERSHIP STRUCTURE COMPLICATIONS - ------------------------------------------------------------------------------- STOCK OWNERSHIP VALUE AND VOTING RIGHTS Percent MARKET CAPITALIZATION VOTING RIGHTS Total = $67 billion Total = 1.03 billion votes [GRAPH APPEARS HERE] Class H shareholders 25% DOES Class H shareholders 4% Class E shareholders 31% NOT Class E shareholders 10% $1 2/3 shareholders 44% EQUAL $1 2/3 shareholders 86% Source: Company annual reports; Wall Street Journal; McKinsey analysis 71A Not only are EDS and Hughes facing challenges because of their ownership structure; General Motors may find itself in a precarious position concerning capital deployment decisions. Regardless of market valuations of the three shareholder positions, General Motors is in the position to allocate capital and implicitly or explicitly define market strategies for each of its subsidiaries. Any attempts by General Motors to direct business to one of its companies over another raises questions about its fiduciary and financial incentives. Capital allocation decisions may be conflicted, a problem that would be aggravated if capital becomes scarce. 71B 5 Alternatives to resolve conflict An EDS divestiture is the most effective alternative to address the conflict and strategic overlap. (P) ALLOWING THE CONFLICTING BUSINESSES TO CONTINUE TO OPERATE UNRESTRAINED WITHIN THE CURRENT GENERAL MOTORS STRUCTURE will result in increasing destructive overlap. (P) DEFINING RULES FOR WHERE AND HOW THE BUSINESSES WILL COMPETE is a complex solution, requiring continuous oversight and raising serious conflict of interest issues. (P) MERGING THE OVERLAPPING BUSINESSES intensifies customer conflicts, further blocks EDS' access to key telecommunications capabilities, and could limit the Hughes businesses links to new technology. (P) DIVESTING HUGHES eliminates many customer concerns, but does not resolve some of EDS' critical partnering conflicts. (P) DIVESTING EDS eliminates customer conflicts, eliminates key capital constraints, and facilitates possible telecommunications mergers and acquisitions with minimal loss of synergy. 72 - ------------------------------------------------------------------------------- GENERAL MOTORS' POTENTIAL OPTIONS TO ADDRESS EDS AND HUGHES CONFLICT
OPTIONS ---------------------------------- --- Allow businesses to Manage conflict within | continue conflicting activity --- current organizational ---| | structure | Define where and how the - ----------------- | --- businesses will operate | General | | | Motors' |--- | | options | | - ----------------- | --- Merge the businesses* | Manage conflict by | --- altering current ---|--- Divest Hughes organizational structure | --- Divest EDS
* All or parts of 73A General Motors has an array of options to handle the conflicts emerging between EDS and Hughes. These range from as passive as allowing the businesses to continue their potentially conflicting activity, to as aggressive as divesting one of the conflicting businesses. 73B - ------------------------------------------------------------------------------- CRITERIA FOR ASSESSING OPTIONS
CRITERIA DESCRIPTION - -------------------------------------------------------------------------------- STRATEGIC CONFLICT/OVERLAP Partner/customer conflict . Effectiveness in minimizing the business conflicts between EDS and Hughes, especially considering potential partners' and customers' perception of competition and/or conflict of interest within the General Motors structure Value destroying overlap . Effectiveness in eliminating potential for value destroying overlap in which EDS and/or Hughes may earn lower returns in some contracts due to their affiliation (e.g., when there are "one bid per entity" or "fee on fee" limitations) Conflicts of ownership . Degree to which EDS and Hughes are capable of consummating mergers, acquisitions, and other alliances, without limitations imposed by General Motors ownership structure Capital issues . Degree to which EDS and Hughes resolve their ability to access capital required for investments ADDITIONAL CONSIDERATIONS Business synergies . Degree to which business synergies within General Motors' structure are leveraged (e.g., mutually beneficial/cooperative efforts between EDS and Hughes, or between parts of EDS and Hughes) Feasibility of implementation . Feasibility based on complexity and organization's ability to implement
74A In considering the array of options accessible, General Motors must critically assess each in terms of its effectiveness along a spectrum of criteria. These criteria should include not only the market overlap and capital deployment issues which have already been discussed, but must also consider the resulting impact on business synergies within the current General Motors' structure, as well as the feasibility of effectively implementing each option. In evaluating the tactical and strategic implications of each option along the established criteria, divesting EDS emerges as the most effective way for General Motors to resolve the emerging business development customer/partner/bidding conflicts) and access to capital conflicts. Furthermore, this option does not disrupt inter-General Motors business synergies, and its implementation is manageable. 74B OPTION 1: ALLOW BUSINESSES TO CONTINUE CONFLICTING ACTIVITY - ------------------------------------------------------------------------------- OPTION 1: ALLOW BUSINESSES TO CONTINUE CONFLICTING ACTIVITY
ADVANTAGES DISADVANTAGES - -------------------------------------------------------------------------------- . No change in current . Key customer groups continue to sense structure or activities competition from other companies in the "General Motors family" . Government agencies may view EDS and Hughes as one bidder in some cases . Potential strategic partners still unwilling to accept ownership structure . Capital scarcity and funding inflexibility limit EDS' and Hughes' strategic options -- EDS unable to consummate telecom/other strategic transactions -- Hughes unable to participate in defense industry restructuring -- Ability to align incentives through stock- based awards is limited . General Motors' capital allocation decisions in a scarce capital environment become complex and subject to conflict . Potential appearances of conflict emerge as General Motors continues to make tactical decisions about operating each business
75A To arrive at this conclusion, it is imperative to assess the tactical and strategic implications of each option. The first option of allowing the businesses to continue to operate unrestrained within the current General Motors structure will likely result in increasing destructive overlap. The customer and partner conflict issues remain and are expected to intensify, and neither EDS nor Hughes has gained ground on the already existing issues of capital deployment and strategic flexibility. 75B OPTION 2: DEFINE WHERE AND HOW THE BUSINESSES COMPETE - ------------------------------------------------------------------------------- OPTION 2: DEFINE WHERE AND HOW THE BUSINESSES COMPETE
ADVANTAGES DISADVANTAGES - -------------------------------------------------------------------------------- . Business "definitions" . Key customer groups continue to perceive resolve business overlaps competition from other companies in the as they currently exist "General Motors" family . EDS and Hughes will . Government agencies may view EDS and Hughes coordinate efforts, on an as one bidder in some cases ad hoc basis, to win contracts . Potential strategic partners still unwilling to accept ownership structure . Capital scarcity and funding inflexibility limit EDS and Hughes' strategic options -- EDS unable to consummate telecom/other strategic transactions -- Hughes unable to participate in defense industry restructuring -- Ability to align incentives through stock- based awards is limited . Defining "acceptable" business space for each player (EDS and Hughes) will limit strategic flexibility, may prevent players from identifying and acting on "next generation" products and/or services, and will require constant review and modification . General Motors' capital allocation decisions in a scarce capital environment become complex and subject to conflict . General Motors drawn into daily decision- making about where and how the businesses will compete; may create obligations to explain tactical decisions to shareholders . Implementation hurdles exist -- Difficult to identify all future areas of conflict; rules will have to be continuously defined during play in a fluid IT landscape -- Differential effects of rules could raise fiduciary conflicts -- Restraint "unnatural" for business managers in competitive commercial environment; incentives misaligned -- Legal considerations
76A A slightly more aggressive option involves defining where and how the businesses will compete (in terms of markets, geographies, customer accounts, service offerings, etc.). The most problematic aspects of this option are the complexity in continually defining the market and competitive boundaries in a very fluid landscape, and the implications limiting strategic flexibility and innovation within each company. Furthermore, potential issues with alliance flexibility and capital scarcity would remain. 76B OPTION 3: MERGE THE BUSINESSES - ------------------------------------------------------------------------------- OPTION 3: MERGE ALL OR PART OF THE BUSINESSES
ADVANTAGES DISADVANTAGES - -------------------------------------------------------------------------------- . EDS and Hughes consolidate . Access to critical telecom capabilities, not efforts, rather than owned by EDS or Hughes, is severely hindered compete, to win contracts due to competitive position . Limited synergies optimized; . Customer's perception of direct competition Hughes could provide is confirmed, resulting in loss of $600 $20-$40 million of EDS' million in immediate business and significant $700+ million telecom needs future options in cable and telecom . Removes General Motors . Customer seeking "best" solutions will role in adjudication question independence of service and products business . New ownership structure even less appealing to potential strategic partners . Capital scarcity and funding inflexibility issues continue to plague new entity . Implementation hurdles exist -- Service and products businesses incompatible -- The organizational capabilities and incentives are incompatible (would likely lose key executives) . Creates unique difficulties if only portions of the businesses are merged -- Synergies within existing organizations may be lost (e.g., Hughes might sever critical ties with its core technology development groups if only "conflicting" business are merged) -- May discourage entrepreneurship/innovation within "non-merged"/core businesses if there is some threat of entering into "overlapping" business, and consequently being forced to merge
77A A third potential option entails merging all or part of the businesses. This option would most likely intensify customer and partner conflicts and would be very difficult to implement (especially due to cultural conflict). There are also unique complications arising out of merging only parts of each business -- particularly involving the implications of "choosing" which portions of the businesses should be merged. This option would also further block EDS' access to key telecommunications capabilities. 77B OPTION 4: DIVEST EDS - ------------------------------------------------------------------------------- OPTION 4: DIVEST ALL OR PART* OF EDS
ADVANTAGES DISADVANTAGES - -------------------------------------------------------------------------------- . Customers not threatened by . Hughes' limitations for partnering other companies in the General due to ownership structure remain Motors family . EDS and Hughes would be separate bidders on government contracts; able to submit two bids; able to earn margin on subcontractor costs . Sale frees capital for EDS and General Motors opportunities . EDS free to tap capital markets to fund growth opportunities . EDS able to partner strategically, free of ownership dilemma
* Divesting only part of EDS creates difficulties. Synergies within EDS may be destroyed. Overlaps will likely continue to surface in the fluid landscape, complicating decisions around which portions should be divested 78A The fourth option assessed involves divesting all or part of EDS. This option eliminates customer conflicts and facilitates EDS' possible strategic telecom mergers and acquisitions with minimal loss of synergy. 78B OPTION 5: DIVEST HUGHES - ------------------------------------------------------------------------------- OPTION 5: DIVEST ALL OR PART OF HUGHES
ADVANTAGES DISADVANTAGES - -------------------------------------------------------------------------------- . EDS and Hughes would be . Potential strategic partners for EDS separate bidders on government still unwilling to accept ownership contracts; able to submit two structure bids; able to earn margin on sub costs . General Motors considers Hughes and its automotive technologies a . Sale frees capital for Hughes strategic asset and General Motors opportunities . May create complications if only a portion of Hughes is divested . Hughes free to tap capital -- Synergies within Hughes (especially markets for major investments technology transfer and innovation from defense into commercial . Simplifies capital allocation applications) could be more decisions process difficult to achieve -- Business overlaps will potentially surface in the fluid landscape, complicating decisions around which portions of the business to divest
79A The fifth option, to divest all or part of Hughes, eliminates customer conflicts, but could divorce the core automotive electronics business from General Motors and fails to resolve barriers EDS faces in consummating critical equity-based transactions. 79B - ------------------------------------------------------------------------------- RECOMMENDED OPTION: DIVEST ALL OF EDS
------------------------------------- | ADVANTAGES | | | | + Eliminates customer/partner | | conflict | | | \ | + Eliminates bidding restrictions | |--- | | | | / | + Mitigates conflict of ownership | | | | | | | | + Resolves capital issues | | | | | | Master Services Agreement could be negotiated pre-divestiture to | | + Implementations is feasible | | \ ensure value stability--EDS would continue to reduce its dependency Option 4: | ------------------------------------- |---- on this relationship Divest EDS ----| | / | ------------------------------------- | Hughes' capital flexibility will increase | | DISADVANTAGES | | | | | | | | -- Value of master service | | | \ | agreement changes | | |--- | | | / | -- Hughes' ownership limitations | | for mergers and acquisitions | | still remain | -------------------------------------
80A Divesting EDS in its entirety emerges as the preferred option, as it most effectively addresses critical concerns, while creating few disadvantages. Even the potential disadvantages with this option can be mitigated if managed proactively. 80B -----END PRIVACY-ENHANCED MESSAGE-----