Salomon Smith Barney Analysis

Shares of Hughes Electronics Corp. [GMH] dipped last week following AOL Time Warner’s [AOL] announcement that it had sold its 8.4 percent stake in Hughes for $837 million, or about $10.45 per share, to an investment bank. Hughes shares may weaken further in the near-term until a supply/demand equilibrium returns to the market. However, our favorable investment opinion of the stock remains.

AOL had acquired the shares for $1.5 billion two years ago as part of a strategic alliance to promote satellite delivery of its Internet services. Since then, both parties scaled back their plans for the alliance. AOL cited debt reduction as the principle motive for selling its Hughes shares. That reasoning seems plausible, given AOL’s current situation.

We have heard comments from investors because Rupert Murdoch and John Malone appear not to have made an offer for Hughes. Investors are expressing concern that Murdoch and Malone are not interested in acquiring Hughes’ DirecTV, and may be pursuing a deal with EchoStar Communications Corp. [DISH] instead.

However, we would not read too much into this speculation. We do not think that Murdoch and Malone want to acquire Hughes outright but would prefer to own a sufficient interest to gain management control. We believe that they could achieve this goal by purchasing General Motors Corp.’s [GM] interest in Hughes.

Given the possibility of a strategic transaction and installation of new management that might improve margins, we remain favorably inclined towards shares of Hughes. Our 2003 estimated price target for shares of Hughes is unchanged at $13, since our target price valuation already assumed the AOL shares were freely traded.

Armand Musey is a satellite communications analyst at Salomon Smith Barney (SSB). Part of the information provided herein includes excerpts, abstracts, and other summary material derived from research reports or notes published by Armand Musey as a member of the Firm’s Global Equity Research Department. For a copy of the full research reports or notes or to view the research-report disclosure required by the NYSE and NASD rules relating to analyst independence and conflicts of interests, please visit http://www.ssbaccess.com or contact a SSB Financial Consultant. Valuation methodologies and associated risks pertaining to price targets, as well as other important disclosures, are contained in research reports and notes published on or after July 8,2002. SSB or its affiliates beneficially owns 1% or more of the common equity of Hughes Electronics and has received compensation for investment banking services provided within the last 12 months from Hughes Electronics.