- The Washington Times - Monday, May 21, 2001

Nobody knows the who the future owner of Newport News Shipbuilding will be.

The company has been the subject of a fight between two competing defense contractors. Contributing to the uncertainty swirling around the Virginia shipbuilder is the fact that any deal will face strict antitrust scrutiny from the Justice Department.

Newport News Shipbuilding Inc. designs, constructs and maintains nuclear-powered aircraft carriers and submarines for the Navy.

Both General Dynamics Corp., the Falls Church defense contractor, and Northrop Grumman, a Los Angeles defense contractor, have made offers on the shipbuilder.

Northrop Grumman jumped into the acquisition battle last Tuesday, making an offer for Newport News two weeks after General Dynamics said they would buy the shipbuilder.

In 1999, General Dynamics, Newport News, and Northrop Grumman became the only three big players in the shipbuilding industry, as a result of a number of mergers, says Scott Keller, an analyst with DealAnalytics.com, a New York mergers and acquisitions research firm.

Newport News stock has gone up since December 1999. Mr. Keller says the stock has stayed strong this year on the presumption that President Bush will be a friend to the defense and shipbuilding industry.

Still, Mr. Keller considers the stock unstable, because of the merger questions, and he rates the company a ?hold.?

It posted a 52-week high of $65.68 May 9, coinciding with the time that Northrop Grumman announced its own plans to acquire the shipbuilder. The company?s stock closed at XX.XX on Friday.

Last month, Newport News accepted an offer from General Dynamics that would have paid the company $67.50 per share in cash to acquire the company.

Northrop Grumman, the nation?s fifth largest defense contractor, made a hostile bid May 8, also offering $67.50 per share, but breaking the offer down into 75 percent stock, and 25 percent cash.

If Northrop Grumman gets the bid, analysts say that would make the company more visible in the shipbuilding industry. Northrop Grumman bought Litton Industries, another shipbuilder, in December. If General Dynamics is given the go-ahead, the company will become the sole builder of nuclear-powered vessels for the Navy, and that could prompt an antitrust hearing.

The government could also squash any merger, a move that could damage the stock, says Paul Nisbet, a defense analyst with JSA Research in Newport, R.I.

The acquisition will have to go through many federal channels, including the Pentagon and the Justice Department.

?This is going to be so interesting to watch. Even with a very pro-business administration, the government will be the decider on who?ll win,? Mr. Nisbet says.

Mr. Nisbet and Mr. Keller agree that it is a long shot that Northrop Grumman takes the bid.

?Northrop has a very full plate right now, having acquired Litton and agreeing to acquire the defense electronics division of GenCorp,? Mr. Nisbet says. GenCorp is a Sacramento, Calif., producer of electronics for the defense industry and chemicals for pharmaceuticals.

?They?re very expended on the balance sheet now, making it weaker than General Dynamics.?

Mr. Keller says while Northrop Grumman?s bid is ?less onerous on the antitrust regulatory front,? the value of the deal would be weaker to shareholders.

?This is a case where you?re going to have one or the other, or neither. If the government objects to both, then it will be nobody.?




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