GM stock falls as arbs try to unload

Sea of shares tendered in Hughes swap deal

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May 23, 2000|By BLOOMBERG NEWS

DETROIT - General Motors Corp. stock fell 11 percent yesterday after the largest automaker accepted only 25 percent of shares investors sought to swap for those of its Hughes Electronics Corp. subsidiary.

The exchange left arbitrageurs with too many GM common shares and too few of its Class H, which tracks the performance of Hughes. Some investors had loaded up on GM shares, which have traded at an average 24 percent discount to Hughes since the offer was announced Feb. 1, with a notion to swap the automaker's shares for those of the electronics company."Basically it's arbs who bought the shares in anticipation of the exchange unloading the shares they now know won't be accepted," said PaineWebber Group analyst Joe Phillippi. "It's classic arbitrage."

GM stock fell $9.5675 to close at $77.375. Its Hughes shares rose $6.875 to $96.75.

Investors have long clamored for more shares of Hughes, whose DirectTV satellite-television service has more than 8.3 million subscribers and is the largest direct broadcasting service in the United States. GM had offered to swap common shares for as much as $9 billion in Hughes stock and cut its stake to 35 percent while maintaining control. Investors ended up seeking about $32 billion in Hughes shares based on the stock price when the offer closed Friday.

GM shares rose 32 percent in the 12 months that ended Friday, mostly on expectations about Hughes, while Hughes rose more than 50 percent in the same period. At least four analysts have downgraded GM stock in the past month on the premise that its price was inflated by investor anticipation of the exchange.

As of April, the average daily short interest in Hughes shares was 9.5 million shares, more than double January's total. Short sellers sell borrowed securities with the hope of repurchasing them later at a lower price and returning them to the lender.

Holders of GM common stock tendered 335.8 million shares in the exchange offer that ended Friday - more than half the 621.2 million shares that GM had outstanding at the end of the first quarter. The company said it expects to accept only 86.4 million common shares in exchange for 92 million shares of the Class H.

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