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Medical Institute to Sell Hughes Aircraft

January 10, 1985

LOS ANGELES (AP) _ Hughes Aircraft Co., one of the nation’s leading defense firms, will be put on the auction block by the Howard Hughes Medical Institute, the non-profit organization that ownes Hughes said Thursday.

The El Segundo, Calif.-based aerospace giant immediately reaffirmed that it would seek to buy a portion of the company through its employee stock ownership plan if the stock is offered publicly.

In a brief statement, trustees of the Miami, Fla.-based medical foundation said they had instructed the New York investment banking firm of Morgan Stanley and Co. to move ahead with a public stock offering or a private sale of Hughes.

The foundation has been sole owner of Hughes Aircraft since 1953, when the late billionaire industrialist Howard Hughes signed it over to the institute.

Analysts put a pricetag of $2.5 billion to $6 billion on the firm, which had sales of $4.9 billion in the fiscal year ended Jan. 1, 1984. The company has about 68,000 employees, most of them in California.

″This company is the premiere defense electronics supplier, and as such presumably it will be sold for some sort of a premium price,″ said industry analyst Wolfgang Demisch of First Boston Corp. in New York, which is advising Hughes Aircraft. ″The company has an exceptional reputation in the industry. It is very attractive.″

″It is a rather unprecedented situation″ since Hughes doesn’t now have any public stock in which arbitragers could speculate and drive up the price, said analyst Paul Nesbit of Prudential Bache in New York.

It has been speculated that the medical foundation might put Hughes on the auction block since early last year when it retained Morgan Stanley as its investment adviser.

The institute’s nine-person board has considered the action at each of its five meetings since last May, the foundation’s president and chief executive, Dr. Donald S. Fredrickson, said by telephone Thursday from his office in Bethesda, Md.

He declined to elaborate on the institute’s brief announcement.

The decision apparently was a response to the Internal Revenue Service, which has been pressuring the tax-exempt medical institute to clarify its ties with Hughes.

Last March, Allen Puckett, the aircraft firm’s chairman, said as much as 50 percent in Hughes may be purchased by the company’s employee stock ownership plan and that he considered the sale of the firm a matter of ″when, not if.″

On Thursday, Hughes spokesman Mike Murphy said the company ″will continue to pursue a program that would enable its employees to praticipate in the ownership of the company.″

Other possible suitors named by analysts were Rockwell International Corp., Litton Industries, Boeing Co., General Electric Co., Westinghouse Electric Corp. and General Motors Corp.

One analyst, who asked not to be identified, said Rockwell, Litton and Boeing ″each has about $1 billion in cash and the debt capacity to make the purchase. The question is whether they would be willing to cough up that kind of money.″

GE, Westinghouse and GM may look upon such an acquisition as a lucrative way to diversfy, said Nesbit.

The medical institute focuses its research on three areas of bio-medicine: genetics, immunology and endocrinology. Besides the staff at its Miami headquarters, the institute has employees and research facilities at 11 teaching hospitals around the nation.

Howard Hughes was sole trustee of the institute until his death in 1976.

The dispute with the IRS involves federal regulations concerning how tax- exempt organizations may invest their funds. The IRS reportedly also is looking into whether the institute is getting adequate returns on its investment.

From 1976 through 1981, Hughes Aircraft paid the institute about $128 million. More recent figures weren’t available.

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