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GM to Pare Ownership of Hughes Electronics

The deal involves a redistribution of GM's class H stock.

General Motors

(GM) - Get General Motors Company Report

said Tuesday that it planned to cut its stake in

Hughes Electronics


by nearly in half, to about 35%, while maintaining control of the unit.

The deal involves a redistribution of GM's class H stock, which tracks the performance of Hughes. The automaker plans to exchange class H stock that it values at $8 billion for its own common shares, in a transaction that the company said would be tax-free. It will also contribute about $7 billion in GM class H stock to GM employee-benefit plans.

The plan is largely seen as a concession to investors, who have been urging GM to sell or spin off Hughes in order to capitalize on higher stock market valuations for technology companies. Hughes, primarily a satellite-maker, has been experiencing solid double-digit revenue growth as demand surges for satellite communications, including its highly successful


television service.

Though a complete spinoff would be lucrative for GM, the company said it "has no current plans or intention to separate Hughes or any of its businesses from GM." But the company said it would continue to evaluate what its ownership structure of Hughes should be.

Although it would no longer control 68% of Hughes, GM said its remaining 35% stake would still be worth about $18 billion.

Shares of GM climbed after the announcement Tuesday afternoon, rising 4 11/16, to 5.8%, to close at 85 1/4. The GM class H shares rebounded after initially falling following the announcement, and ended the day up 2 1/4, or 2%, at 114 3/4.

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Executives at Hughes said GM's reshuffling would have no impact on their company's aggressive growth strategy.

"We believe we can deliver revenue growth in excess of 20%," Michael T. Smith, chairman and chief executive of Hughes, said in a statement. "We are concentrating on the convergence of entertainment, data, voice, Internet and other communications on a variety of platforms."

Despite Smith's lofty expectations, Hughes lost $61 million in the fourth quarter and $105 million for the year. That performance represented a reversal from the $119 million in net income in the fourth quarter of 1998 and the $272 million in net income in 1998. Nonetheless, its revenue rose 25%, to $7.6 billion, in large part because of a 1.6 million jump in the number of subscribers to the DirecTV service.

But that was just a drop in the bucket for GM, which earned $1.15 billion in the fourth quarter, or $1.86 a share, down from $1.77 billion, or $2.61 a share, in the period a year earlier. Despite the 35% drop in fourth-quarter earnings, GM finished the year with profits of $6 billion, up from $2.96 billion in 1998.

Two leading credit-rating firms said they remained upbeat on GM and Hughes following the announcement.

Standard & Poor's

said that the rating for GM's unsecured debt is unchanged at A.

Duff & Phelps

also reaffirmed its rating on GM's unsecured debt at A-.

GM also said Tuesday that it posted large gains in auto sales in January. The company said it sold 348,137 cars in January, an 11% jump from January 1999. Truck sales, at 170,621, were 18% higher than the year-ago period.

GM said that it expected to exchange the Hughes tracking stock for its own stock during the second quarter and that the exchange ratio would be determined just before the transaction.

Separately, in a conference call following the announcement, GM executives said that Hughes Electronics had elected Bernee Strom, president of Internet site

, to its board.