Boeing buys Hughes' Space and Communications businesses

Boeing buys Hughes' Space and Communications businesses

14 January 2000

Boeing is to acquire Hughes' space and communications business and related operations for a value of $3.75 billion in cash. Boeing reckons that the purchase will boost its space and communications revenues and earnings by more than a third and will provide for significant future growth. The Hughes businesses, which anticipate 1999 revenues of $2.3 billion, when added to Boeing's space and communications operations, will initially create an entity with annual revenues approaching $10 billion.

"Boeing intends to be number one in space. This acquisition is a significant step forward in executing our goal of becoming the industry leader in integrated, space-based information and communications," said Phil Condit, Boeing chairman and chief executive officer. He expected the transaction to add to earnings per share in its first full year of operations, 2001.

Industry projections indicate that the space and communications market will grow from its current $40 billion to $120 billion annually by 2010, primarily driven by growth in commercial and government information and communications systems and services.

Boeing is focusing its growth in space and communications in areas that include classified government programme opportunities, new space-based air traffic management systems, the movement of broadband information on and off mobile platforms, and integrated military battlefield and defence systems.

Hughes is the technological world leader in space-based communications, reconnaissance, surveillance and imaging systems. It is also the world's leading manufacturer of communications satellites, having built nearly 40 percent of those in operation. Hughes currently has a backlog of more than 36 satellites valued at more than $4 billion.

Under the agreement, Boeing also will acquire Hughes Electron Dynamics, a supplier of electronic components for satellites, and Spectrolab, a provider of solar cells and panels for satellites. The three businesses have a combined workforce of about 9,000 employees, primarily in the Los Angeles area. Boeing is currently the largest private employer in California with a workforce of 36,700.

The new business unit, to be named Boeing Satellite Systems, will be part of Boeing's Space and Communications group, led by President Jim Albaugh. Boeing Satellite Systems will be headquartered in El Segundo, Calif., under the leadership of Tig Krekel, currently the president of Hughes Space and Communications.

As a result of the sale Hughes announced major changes in its corporate structure and business mix to focus the company's resources and management attention on its high-growth entertainment, information and business communications services businesses. As a result Hughes will record a fourth quarter pre-tax charge of approximately $275 million.

Michael T. Smith, chairman and CEO of Hughes said, "We will now be in a stronger position to fuel the growth of our high-growth service businesses, focus more intensely on customer needs, and devote resources to the integration of new broadband and interactive services.''