Filed by General Motors Corporation
Subject Company - General Motors Corporation
and Hughes Electronics Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Commission File No.: 001-00143
BEAR STEARNS
15TH ANNUAL MEDIA, ENTERTAINMENT &
INFORMATION CONFERENCE
JACK SHAW
PRESIDENT & CHIEF EXECUTIVE OFFICER, HUGHES
EDDY HARTENSTEIN
CHAIRMAN & CHIEF EXECUTIVE OFFICER, DIRECTV
MARCH 4, 2002
[HUGHES LOGO]
o Thank you [Bob] for the introduction and thanks everyone for joining us
here today.
o Today's presentation will begin with an update on the HUGHES businesses.
After that, Eddy and I will take a few minutes to share with you why we
are so enthusiastic about our pending merger with EchoStar.
(SLIDE)
SEC Guidelines [Hughes logo]
IN CONNECTION WITH THE PROPOSED TRANSACTIONS, GENERAL MOTORS, HUGHES AND
ECHOSTAR INTEND TO FILE RELEVANT MATERIALS WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING ONE OR MORE REGISTRATION STATEMENT(S) ON FORM S-4 THAT
CONTAIN A PROSPECTUS AND PROXY/CONSENT SOLICITATION STATEMENT. BECAUSE THOSE
DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION, HOLDERS OF GM $1-2/3 AND GM CLASS
H COMMON STOCK ARE URGED TO READ THEM, IF AND WHEN THEY BECOME AVAILABLE. WHEN
FILED WITH THE SEC, THEY WILL BE AVAILABLE FOR FREE AT THE SEC'S WEBSITE,
WWW.SEC.GOV, AND GM STOCKHOLDERS WILL RECEIVE INFORMATION AT AN APPROPRIATE TIME
ON HOW TO OBTAIN TRANSACTION-RELATED DOCUMENTS FOR FREE FROM GENERAL MOTORS.
SUCH DOCUMENTS ARE NOT CURRENTLY AVAILABLE.
GENERAL MOTORS AND ITS DIRECTORS AND EXECUTIVE OFFICERS, HUGHES AND CERTAIN OF
ITS OFFICERS, AND ECHOSTAR AND CERTAIN OF ITS EXECUTIVE OFFICERS MAY BE DEEMED
TO BE PARTICIPANTS IN GM'S SOLICITATION OF PROXIES OR CONSENTS FROM THE HOLDERS
OF GM $1-2/3 COMMON STOCK AND GM CLASS H COMMON STOCK IN CONNECTION WITH THE
PROPOSED TRANSACTIONS. INFORMATION REGARDING THE PARTICIPANTS AND THEIR
INTERESTS IN THE SOLICITATION WAS FILED PURSUANT TO RULE 425 WITH THE SEC BY
ECHOSTAR ON NOVEMBER 1, 2001 AND BY EACH OF GM AND HUGHES ON NOVEMBER 16, 2001.
INVESTORS MAY OBTAIN ADDITIONAL INFORMATION REGARDING THE INTERESTS OF THE
PARTICIPANTS BY READING THE PROSPECTUS AND PROXY/CONSENT SOLICITATION STATEMENT
IF AND WHEN IT BECOMES AVAILABLE.
THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION. NO OFFERING OF SECURITIES SHALL BE MADE EXCEPT BY MEANS OF A
PROSPECTUS MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933,
AS AMENDED.
MATERIALS INCLUDED IN THIS DOCUMENT CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO BE MATERIALLY DIFFERENT
FROM HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE FACTORS THAT COULD CAUSE ACTUAL RESULTS OF
GENERAL MOTORS CORP. ("GM"), ECHOSTAR COMMUNICATIONS
o As is customary, I'm obligated to present the SEC Guidelines and Safe
Harbor language.
o [Pause for a few seconds]
(SLIDE)
SEC Guidelines - Cont'd [Hughes logo]
CORPORATION ("ECHOSTAR"), HUGHES ELECTRONICS CORP. ("HUGHES"), OR A COMBINED
ECHOSTAR AND HUGHES TO DIFFER MATERIALLY, MANY OF WHICH ARE BEYOND THE CONTROL
OF ECHOSTAR, HUGHES OR GM INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: (1)
THE BUSINESSES OF ECHOSTAR AND HUGHES MAY NOT BE INTEGRATED SUCCESSFULLY OR SUCH
INTEGRATION MAY BE MORE DIFFICULT, TIME-CONSUMING OR COSTLY THAN EXPECTED; (2)
EXPECTED BENEFITS AND SYNERGIES FROM THE COMBINATION MAY NOT BE REALIZED WITHIN
THE EXPECTED TIME FRAME OR AT ALL; (3) REVENUES FOLLOWING THE TRANSACTION MAY BE
LOWER THAN EXPECTED; (4) OPERATING COSTS, CUSTOMER LOSS AND BUSINESS DISRUPTION
INCLUDING, WITHOUT LIMITATION, DIFFICULTIES IN MAINTAINING RELATIONSHIPS WITH
EMPLOYEES, CUSTOMERS, CLIENTS OR SUPPLIERS, MAY BE GREATER THAN EXPECTED
FOLLOWING THE TRANSACTION; (5) GENERATING THE INCREMENTAL GROWTH IN THE
SUBSCRIBER BASE OF THE COMBINED COMPANY MAY BE MORE COSTLY OR DIFFICULT THAN
EXPECTED; (6) THE REGULATORY APPROVALS REQUIRED FOR THE TRANSACTION MAY NOT BE
OBTAINED ON THE TERMS EXPECTED OR ON THE ANTICIPATED SCHEDULE; (7) THE EFFECTS
OF LEGISLATIVE AND REGULATORY CHANGES; (8) AN INABILITY TO OBTAIN CERTAIN
RETRANSMISSION CONSENTS; (9) AN INABILITY TO RETAIN NECESSARY AUTHORIZATIONS
FROM THE FCC; (10) AN INCREASE IN COMPETITION FROM CABLE AS A RESULT OF DIGITAL
CABLE OR OTHERWISE, DIRECT BROADCAST SATELLITE, OTHER SATELLITE SYSTEM
OPERATORS, AND OTHER PROVIDERS OF SUBSCRIPTION TELEVISION SERVICES; (11) THE
INTRODUCTION OF NEW TECHNOLOGIES AND COMPETITORS INTO THE SUBSCRIPTION
TELEVISION BUSINESS; (12) CHANGES IN LABOR, PROGRAMMING, EQUIPMENT AND CAPITAL
COSTS; (13) FUTURE ACQUISITIONS, STRATEGIC PARTNERSHIP AND DIVESTITURES; (14)
GENERAL BUSINESS AND ECONOMIC CONDITIONS; AND (15) OTHER RISKS DESCRIBED FROM
TIME TO TIME IN PERIODIC REPORTS FILED BY ECHOSTAR, HUGHES OR GM WITH THE
SECURITIES AND EXCHANGE COMMISSION. YOU ARE URGED TO CONSIDER STATEMENTS THAT
INCLUDE THE WORDS "MAY," "WILL," "WOULD," "COULD," "SHOULD," "BELIEVES,"
"ESTIMATES," "PROJECTS," "POTENTIAL," "EXPECTS," "PLANS," "ANTICIPATES,"
"INTENDS," "CONTINUES," "FORECAST," "DESIGNED," "GOAL," OR THE NEGATIVE OF THOSE
WORDS OR OTHER COMPARABLE WORDS TO BE UNCERTAIN AND FORWARD-LOOKING. THIS
CAUTIONARY STATEMENT APPLIES TO ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
DOCUMENT.
o [Pause for a few seconds]
o OK, let's take a look at our businesses.
(SLIDE)
HUGHES OVERVIEW [Hughes logo]
[Hughes logo]
2001 Revenues ~$8.3B
[DIRECTV logo] [Hughes Network Systems logo] [PanAmSat logo]
2001 Revenues ~$6.3B 2001 Revenues ~$1.3B 2001 Revenues ~$0.9B
o United States o DIRECWAY o Transponder Leasing
o Latin America - Consumer
o DIRECTV Broadband - Enterprise
o DIRECTV Receiver
Equipment
o Although I'll talk in more detail in a moment about each one of the HUGHES
businesses, I'd like to give you a quick snapshot of the whole HUGHES
family.
o Our direct-to-home segment is comprised of DIRECTV U.S. and DIRECTV Latin
America. Together, for the full-year 2001, these businesses recorded about
$6.3 billion in revenues and ended the year with more than 12 million
subscribers throughout the Americas.
o We also have Hughes Network Systems, or HNS. HNS is the world's leading
provider of satellite-based private business networks, and offers the
DIRECWAY Internet-via-satellite service. It is one of the leading suppliers
of DIRECTV receiving equipment and is also developing the SPACEWAY
platform. HNS generated revenue of about $1.3 billion in 2001.
o Finally, we have PanAmSat, a world leader in satellite services with
blue-chip customers around the globe. PanAmSat, which is 81 percent-owned
by HUGHES and trades on the NASDAQ under the ticker symbol "SPOT", operates
a fleet of 21 satellites and reported 2001 revenues of nearly $900 million
dollars.
(SLIDE)
HUGHES 2002 GUIDANCE [Hughes logo]
Increase from 2001
------------------
HUGHES Revenue: $9.0 - 9.2B ~10%
HUGHES EBITDA: $750 - 850M >90%
Business Unit Highlights
------------------------
[DIRECTV logo] [Hughes Network Systems logo] [PanAmSat logo]
o DIRECTV U.S. o HNS' Broadband Products and o PanAmSat is
EBITDA Expected Services Division is Expected to Targeting EBITDA
to More Than Double to Grow Revenues by 20 - 25% Margin of 70%
$525 - 575M While While Reaching EBITDA Break or Higher
Adding Over 1M New Even
Subscribers
o Looking ahead, despite uncertainty about the economy, we are anticipating
strong financial and operational results in 2002. Our top priorities are to
conserve cash, acquire loyal subscribers and grow our businesses
profitably.
-> At DIRECTV U.S., we see the key metrics continuing to trend in the
right direction. Subscriber acquisition costs--or SAC-- are expected
to be meaningfully lower and churn rates are improving. We expect to
add more than 1 million net new subscribers while more than doubling
our EBITDA versus 2001.
-> HNS expects its core Broadband Products and Services division to post
20 to 25 percent top-line growth while also achieving EBITDA
break-even.
-> And PanAmSat's new leadership is targeting EBITDA margins of 70
percent or higher.
o When you add it all up, these complimentary businesses are expected to
generate over $9 billion of revenue and $750 to $850 million of
EBITDA--which, as you can see on the slide, compares very favorably with
2001.
(SLIDE)
HUGHES 2002 Financing [Hughes logo]
Successfully Completed Financing Transactions
Providing Significant New Liquidity
o PanAmSat Raised $2.05B and Repaid Inter-company Loan of $1.725B to HUGHES
o Refinancing HUGHES' Credit Facilities Totaling $1.8B
o Additional Debt Capacity Available
o Business Plan Funded Through the Expected Close of the EchoStar Merger
Later this Year
o Underlying the guidance for HUGHES' businesses is a solid balance sheet and
significant new liquidity.
-> HUGHES' 2002 cash requirements will be funded primarily from
PanAmSat's repayment last week to HUGHES of the $1.725 billion
intercompany loan that has been in place since the merger between
HUGHES and PanAmSat in 1997. In fact, HUGHES received the cash from
PanAmSat just last week.
-> In addition, HUGHES is in the process of refinancing approximately
$1.8 billion of its current debt. Just recently we completed a
transaction that amended our current $750 million revolver and
increased its size to approximately $1.2 billion. We also expect to
supplement this with a $577 million term loan to be placed in the next
few weeks.
-> These transactions also provide HUGHES with additional debt capacity
and fund our businesses through the expected close of the EchoStar
merger later this year.
o Now, let's take a deeper dive into the HUGHES businesses, beginning with
DIRECTV in the United States.
(SLIDE)
DIRECTV U.S. - A Profitable [DIRECTV logo]
Growth Strategy
Increase Financial Returns While . . . Growing Our
Subscriber Base
Value Drivers [chart showing 9.5M in 2000, 10.7M in 2001
------------- and 11.7 - 11.9M in 2002E]
Increase Margins
Lower Churn
Reduce SAC
[Picture of a satellite dish]
o As you can see on the chart, we expect demand for our service to again be
strong in 2002 with an expected addition of more than 1 million new DIRECTV
customers. However, its important to note that our primary focus is on
profitability and to increase the financial returns on our new subscribers.
o During the latter part of last year, the DIRECTV U.S. management team
implemented a series of operational strategies that were designed to lower
subscriber acquisition costs, increase subscriber retention rates and
improve operating margins.
o Let's take a look at these strategies in more detail.
(SLIDE)
DIRECTV U.S. - Key [DIRECTV logo]
Operational Objectives
Reduce Costs
------------
o Lower Subscriber
Acquisition Costs
- Eliminate manufacturing
subsidies
- Attack piracy
o G&A Savings
- $50M annual cost
savings
o Programming Margin
Initiatives
- New packages
- Customer Relationship
Management System
[Graphic of an arrow pointing downward with the above
text written within the arrow]
o These strategies are highly focused on improving DIRECTV's cost structure.
For example, we expect to reduce subscriber acquisition costs significantly
in 2002, bringing the total SAC down from $555 last year to about $525 this
year.
-> One way we're cutting SAC is by eliminating subsidies to manufacturers
of DIRECTV set-top boxes.
-> We're also escalating our efforts to combat signal piracy.
- A key initiative is what we call our "Out of the Box" program
which is designed to reduce the number of set-top boxes purchased
by hackers from retailers with unassisted sales floors.
- These retailers are now selling DIRECTV receivers without
conditional access cards which stops hackers from buying multiple
boxes inexpensively and illegally program the access cards.
- We're also making it extremely difficult for would-be hackers to
get their hands on inexpensive boxes by providing incentives to
our national retailers such as RadioShack, Blockbuster and
Circuit City to sell to customers who commit to activate the
service.
(Continued)
DIRECTV U.S. - Key [DIRECTV logo]
Operational Objectives
Reduce Costs
------------
o Lower Subscriber
Acquisition Costs
- Eliminate manufacturing
subsidies
- Attack piracy
o G&A Savings
- $50M annual cost
savings
o Programming Margin
Initiatives
- New packages
- Customer Relationship
Management System
[Graphic of an arrow pointing downward with the
above text written within the arrow]
(DIRECTV U.S.-KEY OPERATIONAL OBJECTIVES, CONT'D)
o We're also targeting to increase DIRECTV's operating margins.
-> For example, we recently eliminated approximately 25 percent of
DIRECTV's labor costs which is expected to result in annualized G&A
savings of about $50 million.
o And we also have a sharp eye on reducing our programming costs--which is
the single largest element in DIRECTV's cost structure--while also
maintaining our industry-leading video ARPU which is currently about $56
per month.
-> Examples of the things that we are or will be doing include the
implementation of new programming packages, a new customer
relationship management system and leveraging our large subscriber
base to negotiate more favorable rates from programmers.
(SLIDE)
DIRECTV U.S. - Key [DIRECTV logo]
Operational Objectives
Reduce Costs Reduce Churn
------------ ------------
o Lower Subscriber o Acquiring Committed
Acquisition Costs Long Term Customers
- Eliminate manufacturing - 12 month commitment
subsidies - New incentive plans
- Attack piracy with retailers
o G&A Savings o Significantly Improved
- $50M annual cost Customer Service and
savings Installations
o Programming Margin
Initiatives
- New packages [Graphic of an arrow pointing downward
- Customer Relationship with the above text written within the
Management System arrow]
[Graphic of an arrow pointing
downward with the above text
written within the arrow]
o One of our most important value drivers is to control our churn rate.
-> Over the last several quarters, churn has averaged about 1.7 percent
per month, which by the way, is significantly lower than cable's
average churn rate of about 2.5 percent. However, with some new
initiatives, we believe we can drive churn even lower.
- Beginning in the fourth quarter of 2001, we began providing more
attractive offers to customers who commit to 12 months of
service. The most recent data shows that over 80 percent of all
of our new subscribers are making the 12 month commitment.
- And we also implemented more stringent credit screening practices
which, for example, may include on-going payments with a credit
card.
-> We are also reducing churn by investing to improve every aspect of the
DIRECTV customer experience. Earlier last year, it was clear that
service levels were not meeting our standards and contributed to
customer churn.
- Today, I'm happy to report that we're meeting our targeted
customer service and installation metrics in all key areas.
(SLIDE)
DIRECTV 4S - [DIRECTV logo]
Our Most Powerful Satellite
[Graphic of satellite beaming signal to Earth] Benefits
--------
o Capacity for 300
New Channels
o Meets Must-Carry
Requirements
o DIRECTV is Now a True
Cable Alternative
o Lower Churn and Higher
Subscriber Growth in
Markets Where Local
Channels Offered
o We also expect to see improvements in churn as a result of the latest
addition to the DIRECTV U.S. satellite fleet, DIRECTV 4S, a high-powered
spot-beam satellite that began commercial operations at the end of last
year.
o With 4S, DIRECTV instantly added 225 new local channels and is now
compliant with the "must carry" requirement, which became effective on
January 1, 2002. As you may know, with "must carry", we're obligated to
broadcast all the local channels in any market where we offer local channel
service.
o Today we offer local channels to 41 markets covering about 61 percent of
the television households and we believe that DIRECTV is now truly a
complete replacement for cable in these markets.
(SLIDE)
DIRECTV U.S. - New Strategies Result [DIRECTV logo]
In Improved Financial Returns
Accelerating EBITDA Increasing Subscriber IRRs(2)
------------------- -----------------------------
[Chart showing $151M in 2000, [Chart showing 41% in 1H '01,
$208M(1) in 2001, and $525 - 43% in 2H '01, and 47% in
$575M in 2002E] 2002E]
-----------------------
(1) Excludes one-time severance charges of $48M
(2) Assumptions for 1H'01/2H'01/2002E: SAC: $555/$560/$525; Monthly Churn:
1.75%/1.65%/1.60%; ARPU: $55.50/$56.70/$56.00
o We expect that all of these new initiatives will have a rapid and
meaningful impact on DIRECTV's financial returns.
o As you can see, DIRECTV EBITDA is expected to more than double in 2002.
o And the returns on each incremental subscriber we add to the platform have
already shown steady improvement over the course of last year and are
expected to approach 50 percent in 2002.
o While I am very proud of the progress we've made during the last several
months, it's also clear to me that we have a lot of work left to do in
order to further unlock the tremendous potential value in DIRECTV.
o And we'll take every opportunity to keep you up-to-date on how we're doing
in meeting our objectives and implementing these new strategies.
o Now, let's take a look at DIRECTV Latin America--or DLA.
(SLIDE)
DIRECTV - Latin America [DIRECTV LATIN AMERICA logo]
o Over 1.6M Subscribers [Picture of soccer players and
o Exclusive the 2002 FIFA World Cup
Programming Korea Japan logo]
o World Cup Rights
o Launched Interactive [DIRECTV INTERACTIVE logo
Services with pictures from Super Bowl
o Aggressive Cost and XXXVI on a television screen]
Churn Reductions
o Today, we are the only multi-channel provider serving the entire region,
with more than 1.6 million customers in 28 countries.
o DLA offers the most extensive pay-per-view services in the region, has
exclusive agreements with major programmers such as Disney and HBO, and has
launched interactive service in key markets.
o DLA also offers exclusive sports entertainment--the largest of which is the
World Cup for 2002 and 2006.
o From an operational standpoint, we're making good progress towards reducing
customer churn and at the same time improving DLA's cost structure.
-> As a result of DLA's rigorous churn policies --including higher up
front payments from customers and new dealer incentives--churn at DLA
declined in every quarter during 2001, and is expected to be 2.5
percent or less in 2002.
-> And the aggressive series of cost cutting measures implemented last
year-- which included a nearly 20 percent workforce reduction--is
expected to produce annual savings of $40 million beginning this year.
We had been targeting EBITDA break-even in 2002 but with the recent
Argentinean currency devaluation, we are currently reworking our
projections.
o Now let's move on to HUGHES Network Systems.
(SLIDE)
HUGHES NETWORK SYSTEMS [Hughes Network Systems logo]
[DIRECWAY logo] - One Platform That Leverages Both
Enterprise and Consumer Markets
Enterprise
----------
[Arco logo] [GM logo] [Circuit City logo] [Mobil Logo] o World Market Share Leader
[K-Mart logo] [Wendy's logo] [Ford logo] [Wal-Mart logo] o 400,000 VSAT Terminals
[Blockbuster logo] [Jack in the Box logo] [BMW logo] Installed in 85 Countries
[Chevron logo]
Consumer
--------
[Pegasus Communications logo] o >100,000 Subscribers
[AOL logo] [DIRECTV logo] [Earthlink logo] o Focused on "Powered by
DIRECWAY" Wholesale Model
o Bundled with DIRECTV
o Leading Provider of DIRECTV
Set-Top Boxes
o HNS' core business is providing satellite-based broadband products and
services to both businesses and consumers under a single platform called
DIRECWAY. We believe that the single platform across HNS' base of customers
will create economies of scale and cross-channel sales opportunities, which
gives HNS a competitive advantage.
o On the enterprise side, HNS is the world leader, having captured over half
of the very small aperture terminal--or VSAT--industry's market share.
o With an installed base of more than 400 thousand terminals spanning the
globe in 85 countries, HNS provides DIRECWAY products and services to a
stable of blue chip customers. Just a few of these are depicted on the
slide.
o HNS has leveraged its expertise and scale with enterprise customers to the
consumer marketplace.
-> Today, HNS provides satellite broadband internet access to over 100
thousand consumers and expects to end 2002 with 200 to 300 thousand
customers.
-> HNS has wholesale relationships through its "Powered by" agreements
with DIRECTV and Pegasus, and with leading internet service providers
including AOL and Earthlink.
(CONTINUED)
HUGHES NETWORK SYSTEMS [Hughes Network Systems logo]
[DIRECWAY logo] - One Platform That Leverages Both
Enterprise and Consumer Markets
Enterprise
----------
[Arco logo] [GM logo] [Circuit City logo] [Mobil Logo] o World Market Share Leader
[K-Mart logo] [Wendy's logo] [Ford logo] [Wal-Mart logo] o 400,000 VSAT Terminals
[Blockbuster logo] [Jack in the Box logo] [BMW logo] Installed in 85 Countries
[Chevron logo]
Consumer
--------
[Pegasus Communications logo] o >100,000 Subscribers
[AOL logo] [DIRECTV logo] [Earthlink logo] o Focused on "Powered by
DIRECWAY" Wholesale Model
o Bundled with DIRECTV
o Leading Provider of DIRECTV
Set-Top Boxes
(HUGHES NETWORK SYSTEMS, CONT'D)
-> The wholesale model is our preferred approach because HNS pays a very
small portion of the SAC yet participates in an attractive revenue
sharing arrangement with our partners.
-> And, beginning this year, HNS and DIRECTV will begin to aggressively
market a bundled video / two-way data service to existing and
prospective DIRECTV customers.
o And as I mentioned earlier, these enterprise and residential broadband
businesses, which are now reported together, are expected to grow revenues
by 20 to 25 percent in 2002. Importantly, this unit is expected to reach
EBITDA break-even because the investment in the DIRECWAY consumer business
is offset by the double-digit EBITDA margins earned in the enterprise
business.
o Now, let's take a quick look at PanAmSat.
(SLIDE)
PanAmSat [PanAmSat logo]
2001 Revenues: $0.9B
--------------------
o 21 Satellites Covering [Pie chart showing 68% for
98% of World's population Video Services, 25% for
o Diversified Blue-Chip Customer Base; Network Services, and 7% for
$5.8B Backlog Other]
o Successfully Completed
$2B Debt Refinancing
o Targeting 2002 EBITDA
Margins of 70% or Higher
o With 21 satellites in-orbit and a $5.8 billion backlog from blue chip
customers such as AOL Time Warner, Disney and Viacom, PanAmSat is a global
leader in the fixed satellite service business.
o Last week, PanAmSat successfully raised more than $2 billion in new bank
debt and long-term notes. As I indicated earlier, the bulk of the proceeds
will go towards repaying the $1.725 billion intercompany loan to HUGHES,
with the remainder providing PanAmSat with additional financial
flexibility.
o In addition to its improved capital structure, PanAmSat has undertaken a
series of initiatives designed to strengthen its operational performance by
re-focusing on its core businesses and key customers. This new strategy
produced significantly improved results in the second half of last year and
has set the stage for anticipated EBITDA margins of 70 percent or better in
2002.
o At this point in the presentation, Eddy and I would like to turn our
attention to the proposed merger between HUGHES and EchoStar. I'll give you
a quick overview of the transaction and then turn the podium over to Eddy.
(SLIDE)
[EchoStar logo]
[Hughes logo]
A Powerful Combination
o As you probably know, in late October of last year we announced the
proposed merger of HUGHES and EchoStar.
o And as the caption on this slide indicates, I'm hard pressed to think of a
merger between two companies that provides synergies and other efficiencies
as tangible and powerful as does the combination of these two companies.
(SLIDE)
Transaction Summary
o HUGHES and EchoStar to Merge
- EchoStar shareholders to receive about 1.37 HUGHES shares for each
EchoStar share
- Equivalent to 0.73 EchoStar shares per HUGHES share
o Before the Merger, HUGHES Pays a Cash Dividend of Up to $4.2 Billion to GM
Which Reduces GM's Retained Economic Interest in HUGHES
o Up to Six Months After the Closing, GM May Offer Up to 100 Million Shares
of HUGHES Equity in Exchange for GM Debt Securities
o Fully-Committed Financing
[EchoStar logo] [Hughes logo]
o In case you missed the details of the announcement, allow me to spend a
minute on the highlights.
-> At close, EchoStar shareholders will receive approximately 1.37 HUGHES
shares for each EchoStar share. At current prices, this represents
roughly a 26 percent premium for HUGHES shareholders.
-> HUGHES will also pay a cash dividend of up to $4.2 billion for a
portion of General Motor's retained economic interest in HUGHES. The
exact number of shares will depend on the average 5 day trading price
of GMH prior to the close of the transaction.
-> In addition, anytime prior to the close of the deal and up to six
months after the close, GM has the option to offer up to an additional
100 million shares of its equity in HUGHES in exchange for GM debt
securities.
-> Importantly, this transaction is fully-financed, with Credit Suisse
First Boston and Deutsche Bank together providing the bridge
financing.
(SLIDE)
Pro Forma Economic Ownership
------------ ---------------
GM Class H EchoStar Public
Shareholders Shareholders
------------ ---------------
\ /
\ /
51% 18%
\ /
\ /
-------------
-------------- New Company -------
General Motors ---- 10% --- EchoStar) --- 4% ---- Vivendi
-------------- ------------- -------
|
|
17%
|
|
-------------
Charles Ergen
-------------
Note: Assumes $4.2 billion dividend paid to GM, and a corresponding reduction of
GM's retained interest in HUGHES, at an illustrative price of $18.44 based upon
the implied deal value. Does not include the offer of up to 100 million shares
of HUGHES equity in exchange for GM outstanding debt.
[EchoStar Logo] [Hughes logo]
o The pro forma ownership of the new company is expected to be as follows:
-> Current GMH shareholders will own roughly 51 percent;
-> General Motors, assuming the $4.2 billion dividend but excluding the
100 million share exchange, will hold about 10 percent;
-> And current EchoStar stockholders will own the remaining 39 percent,
broken down as follows:
- The public shareholders owning about 18 percent,
- EchoStar founder Charlie Ergen holding some 17 percent,
- And Vivendi, as a result of their recent strategic investment in
EchoStar, retaining about 4 percent.
-> All of these percentages were calculated using the implied GMH deal
value of $18.44 per share at the time of the merger announcement. Of
course, the final ownership percentages will be influenced by such
things as the final stock prices of the two companies and whether or
not GM exchanges its shares for debt.
-> And now I'd like to turn it over to Eddy for a more detailed look at
this merger.
(SLIDE)
Key Merger Synergies
o Efficient Utilization of Scarce Spectrum
o Reallocation of Approximately 500 Duplicate Channels
o New Content and Services
o Significant Cost Savings
[EchoStar logo] [Hughes logo]
o Thanks, Jack.
o This transaction not only unlocks synergies that will create tremendous
value for shareholders of both HUGHES and EchoStar, but also generates
substantial benefits for consumers as a result of the combined company's
improved competitive position vis a vis the incumbent cable monopoly.
o The primary reason for these synergies and consumer benefits stem from the
merger's efficient utilization of scarce spectrum and the elimination of
over 500 duplicative channels.
o And as you might expect, there are also tremendous cost savings expected
from this merger.
o Let's take a deeper dive on these topics, beginning with the current DBS
orbital landscape.
(SLIDE)
DBS Satellites and Conus(1)
Orbital Slot Locations
119 degrees WL(2) 110 degrees WL 101 degrees WL
----------------- -------------- --------------
DIRECTV-6 11 Frequencies DIRECTV-1 3 Frequencies DIRECTV 1-R 8 Frequencies
EchoStar 2,4,6 21 Frequencies EchoStar 5 29 Frequencies DIRECTV-2 8 Frequencies
DIRECTV-3 8 Frequencies
DIRECTV 4-S 8 Frequencies
[Graphic of each of the satellites mentioned above and Earth]
-----------------
(1) CONUS stands for Continental United States
(2) EchoStar 7 is expected to begin service in April 2002
[EchoStar logo] [Hughes logo]
o Today, there are three DBS orbital slots with a total of 96 frequencies--or
spectrum-- from which HUGHES and EchoStar broadcast their services.
Currently, EchoStar holds licenses for 50 of these frequencies and HUGHES
is licensed for the remaining 46 frequencies.
o As depicted on this slide, the spectrum is allocated somewhat randomly and
along with the satellites, are not aggregated in the most efficient fashion
for either company.
(SLIDE)
Channel Duplication
--------------------------- ------------------ ---------------- --------------
EchoStar DIRECTV Channels
Channels Channels Duplicated
--------------------------- ------------------ ---------------- --------------
Basic(1) 122 116 99
--------------------------- ------------------ ---------------- --------------
Premium 34 31 28
--------------------------- ------------------ ---------------- --------------
Local Channels ~400 ~450 ~300
Currently Carried(2)
--------------------------- ------------------ ---------------- --------------
Other:
--------------------------- ------------------ ---------------- --------------
PPV 24 50 24
--------------------------- ------------------ ---------------- --------------
Sports(3) 23 23 22
--------------------------- ------------------ ---------------- --------------
A la carte(4) 64 49 30
--------------------------- ------------------ ---------------- --------------
Total ~667 ~719 ~503
--------------------------- ------------------ ---------------- --------------
(1)Total Choice, America's Top100
(2) In addition, DIRECTV expects to broadcast local channels to ten new markets
in 2002 from the 119 degrees WL orbital location
(3) Does not include professional and college sports packages
(4) Includes Spanish-language channels, Adult, Family Pack and additional
content in America's Top 150
[EchoStar logo] [Hughes logo]
o As you can imagine, this results in tremendous inefficiencies.
o As this chart indicates, some 75 percent of the channels broadcast by
EchoStar and DIRECTV are exactly the same channels!
o You can see that the greatest duplication is in the broadcast of local and
basic channels where we currently offer over 500 of the same channels.
o So by combining these two companies, we could free-up capacity for a total
of 500 new channels--channels that could be used to provide new content and
additional services.
(SLIDE)
Competitive Benefits of the Merger
o Increased Competition with Cable
- Cable still has ~80% of the U.S. multichannel subscribers
- Cable continues to increase prices each year (37% since 1996 vs. CPI
of 10%)
- On-going cable industry consolidation
- Digital cable and bundled broadband offering increasingly threatens
DBS
o More Services, More Choices and Competitive Prices
- More High Definition TV channels
- Expanded services: interactive, ethnic, video-on-demand, sports and
news
- Nationwide broadband services at affordable prices
- Local service to every U.S. household
[EchoStar logo] [Hughes logo]
o This is important because we compete with a cable industry, that despite
significant annual price increases, has become a much more formidable
competitor to DBS.
-> Most cable operators now offer a digital tier of video services and
high-speed Internet access.
-> And the cable industry continues to consolidate. If approved, the
announced Comcast/AT&T merger will create a 22 million subscriber
colossus that will be able to offer an extremely robust bundle of
video, data and voice services.
o A combined DBS platform that utilizes spectrum efficiently, eliminates
duplicative channels, and attains significant cost savings will more
effectively offset cable's strengths by offering more services and more
choices at competitive prices. For example, we will be able to provide:
-> Expanded nationwide broadband services at affordable prices;
-> Up to a dozen high definition channels as well as more interactive,
ethnic and video-on-demand services.
o But perhaps most importantly, as we announced last week, we will now be
able to offer local channels to all 107 million households in America.
(SLIDE)
42 Million Households Without a
True Choice
[Map of the United States with certain areas shaded. Shaded areas illustrate
households with no competitive alternatives today]
[EchoStar logo] [Hughes logo]
o Today, 42 million television households are not served with local channels
by either DIRECTV or EchoStar. These 42 million households are depicted in
red on this map of the United States. Consumers in these markets do not
have a true complete alternative to cable.
-> Individually, neither DIRECTV nor EchoStar have sufficient spectrum
and satellite capacity to provide local channels, as well as the
national networks, to more than 50 to 70 of the nation's 210 local
channel markets.
o However, a merged company would be able to offer the 42 million
households--located in the 70th through 210th markets--a viable choice for
pay television that they would not otherwise have.
o In other words, for over 40 percent of the country, this merger represents
an increase in choice, which is quite a different story from what you often
pick-up in the newspapers.
(SLIDE)
One Nation, One Rate Card
[Map of the United States with the phrase "107 Million TV Households Will Have a
Competitive Alternative After the Merger" written across it]
[EchoStar logo] [Hughes logo]
o The beauty of this merger is that no household in America will be
disenfranchised.
o Consumers across the country will pay the same price for their satellite TV
services, regardless of where they reside. We are one nation, and the
merged company will offer the same pricing structure to all consumers
everywhere using one small dish!
-> The key benefit of a national pricing policy is that it will afford
the small percentage of Americans living in areas not served by a
cable company the benefit of the strident competition between DBS and
cable in urban and suburban areas.
-> In addition, this merger represents the best opportunity to bring
affordable broadband services to every home in America.
(SLIDE)
Potential Synergies of The Merger
2005 EBITDA Estimates
---------------------
Revenue Synergies Cost Synergies
----------------- --------------
[Pie chart showing $250-300M for [Pie chart showing $900-1,200M
Broadband, $50-100M for HDTV, for SAC, $400-450M for G&A,
$75-125M for VOD/PPV, $700-800M $600-700M for Programming and
for Local Services and $900-1,000M $750-850M for Churn]
for Advertising]
Subtotal: $1.975 - $2.325B Subtotal: $2.65 - $3.2B
[EchoStar logo] [Hughes logo]
o As I mentioned earlier, the merger synergies are huge--potentially as much
as $5 billion in EBITDA improvements in 2005.
-> About two-thirds of these synergies relate to cost savings. As you can
see on the slide, the biggest savings are expected to come from:
- Reducing SAC by standardizing set-top boxes and increasing
production volumes.
- Reducing monthly churn by enhancing the customer experience with
more services like local channels, interactive features, HDTV and
a bundled video/data service.
- Increasing programming margins by leveraging the larger combined
subscriber base.
- And eliminating duplicative overhead costs.
-> Approximately one-third of the synergies are expected to come in the
form of incremental revenue opportunities.
- For example, expanded advertising and interactive services are
expected to increase average revenue per subscriber.
- In addition, we believe that local channels expanded to all 210
markets and the greater availability of less expensive broadband
services will result in significantly more revenue per year.
(SLIDE)
Support for the Merger
o American Farm Bureau Federation
o Consumer's Union
o National Taxpayer's Union
o Citizens for Sound Economy
o League of United Latin American Citizens
o Vivendi Universal, SA
o Progress and Freedom Foundation
o Circuit City Stores, Inc.
o Small Business Survival Committee
o Frontiers of Freedom
o State of Louisiana
o US Internet Industry Association
o RadioShack
[EchoStar logo] [Hughes logo]
o Now let's turn to the regulatory process and schedule to complete the
merger.
o While the media have been quick to report on the very vocal detractors of
our merger, for the sake of balance, I'd like to take this opportunity to
highlight several groups who have come out in support of our cause.
o I won't read you the list but you can see that it's rather extensive.
o I think that its fair to say that many of those who have voiced opposition
to the merger have done so primarily for self-serving reasons--be them
political or economic.
(SLIDE)
Regulatory Update
-------------------- ----------------- ------------------------ ------------------------- ----------------------
DOJ FCC SEC IRS
-------------------- ----------------- ------------------------ ------------------------- ----------------------
Nov. 2001 Initial Filing
-------------------- ----------------- ------------------------ ------------------------- ----------------------
Dec. 2001 Second Request Initial Filing Ruling Request Filed
-------------------- ----------------- ------------------------ ------------------------- ----------------------
Feb. 2002 Public Comments Filed
-----------------------
Additional Info.
Request
-----------------------
HUGHES Response to
Public Comments
-------------------- ----------------- ------------------------ ------------------------- ----------------------
March 2002 Response to Additional S-4 Filing
Info. Request
-------------------- ----------------- ------------------------ ------------------------- ----------------------
May 2002 S-4 Declared Effective
-------------------- ----------------- ------------------------ ------------------------- ----------------------
June 2002 Shareholder Vote Receipt of Ruling
-------------------- ----------------- ------------------------ ------------------------- ----------------------
July - Oct 2002 Receipt of DOJ Receipt of FCC
Clearance Clearance
-------------------- ----------------- ------------------------ ------------------------- ----------------------
[note: the portion of the chart from Nov. 2001 through and including Feb. 2002
is completely shaded. Shading indicates "completed"]
[EchoStar logo] [Hughes logo]
o Here we summarize the key milestones in the merger process.
o By-in-large, the regulatory process is proceeding as expected. The most
significant upcoming milestones will be the filing of the S-4 with the
Securities and Exchange Commission, which we anticipate occurring later
this month, followed by the GM and GMH shareholder votes in the June/July
timeframe.
o We remain highly confident that this merger will be approved and we stick
to our original schedule of completing the merger in the second half of
2002.
(SLIDE)
GMH Shareholder Protections
o HUGHES Will Absolutely Manage the Business in an Aggressive and Effective
Fashion
- HUGHES management to remain totally focused on running the business
o Cash Available if Regulatory Approval is Not Received
- $600M fee paid to HUGHES by EchoStar
- EchoStar to purchase HUGHES' interest in PanAmSat for ~$2.7B
- Potential for GMH spin-off in the future
o Continued Use of the DIRECTV Brand Name in Any Event
[EchoStar logo] [Hughes logo]
o Now in the unlikely event that this transaction does not pass regulatory
clearance, HUGHES shareholders are protected.
-> Until we close this deal, we will be totally focused on running the
company in a way that maximizes shareholder value. We will not be
distracted by the transaction, and the operations will not
deteriorate. We went down that path once before and Jack and I will
not let that happen again.
-> If regulatory approval is not attained, EchoStar is obligated to pay
HUGHES $600 million and purchase HUGHES' 81 percent stake in PanAmSat
for $2.7 billion. We expect this to fund HUGHES' cash requirements
through free cash flow breakeven and preserves our ability to spin-off
HUGHES from GM in the future.
-> And for further protection, we negotiated to ensure that in any
scenario, DIRECTV would be the surviving brand.
o So with or without a transaction, the HUGHES businesses are poised for
success.
(SLIDE)
A Powerful Combination
o 100% Digital Nationwide Platform With More Than 17.5 Million
Subscribers (Including 15.6 Million Owned-and-Operated) as of Year-End
2001
o Creates Stronger Competitor to Large, U.S. Cable and Broadband
Providers
o 107 Million U.S. Households Offer Powerful Growth Opportunity
o Leverages Already Compelling DBS Economics
o Substantial Cost and Revenue Synergy Opportunities
o Superior Management Team with Proven Success
[EchoStar logo] [Hughes logo]
o Let me wrap-up by saying that this transaction will be great for both
shareholders and consumers.
-> A single platform, offering a superior bundle of services, with a
current base of nearly 17 million customers, creates a stronger
competitor to the incumbent cable and broadband providers in the
United States.
-> Being a nationwide service, we have nearly 90 million additional
potential customers. This is clearly a powerful growth opportunity.
-> The cost and revenue synergies are huge, and I believe that by
combining these two companies, there will be significant value created
for GM, Hughes and Echostar shareholders.
-> And finally, the combined company will have a superior, proven
management team to ensure that we execute the merger and capture the
benefits for both shareholders and consumers.
(SLIDE)
BEAR STEARNS
15TH ANNUAL MEDIA, ENTERTAINMENT &
INFORMATION CONFERENCE
JACK SHAW
PRESIDENT & CHIEF EXECUTIVE OFFICER, HUGHES
EDDY HARTENSTEIN
CHAIRMAN & CHIEF EXECUTIVE OFFICER, DIRECTV
MARCH 4, 2002
[HUGHES LOGO]
o That concludes my prepared remarks. Now, Jack and I will open it up for
questions and answers.