- The Washington Times - Tuesday, April 16, 2002

Northrop Grumman Corp.'s increase of its takeover bid for defense-industry rival TRW Inc. has set the stage for two key TRW shareholder votes next week that could make or break the proposed buyout.
If the deal goes through, the combination of the two companies would create the largest-ever U.S. defense contractor.
Analysts said the increased offer is likely to get strong shareholder support, and the approval of the two measures next week would likely spur TRW executives to meet with counterparts at Northrop, a Los Angeles-based defense contractor.
Many analysts said the timing of the offer increase was clearly designed to pressure TRW shareholders to pass measures that would put a merger of the two companies on the fast track.
One issue to be raised next week is TRW's opening of its financial books to Northrop, a measure that the Cleveland-based firm has steadfastly refused. Northrop says it will not pursue a takeover until it views TRW's internal financial records. On April 24, TRW shareholders will vote on whether to allow Northrop this access.
"The whole intent of this is to entice the shareholders to put pressure on TRW's management to open their books," said Paul Nisbet, an analyst with JSA Research in Newport, R.I.
On April 22, TRW shareholders will vote on Northrop's offer. TRW's board of directors has advised shareholders not to act. It had rejected the $47-per-share offer as too low, and executives from the company have yet to meet with counterparts at Northrop. Shares of TRW have traded above $50 since the offer was made February 21.
TRW interim Chairman Phil Odeen has outlined a plan to spin off the company's auto-parts business and become a stand-alone defense contractor. TRW has argued that the restructuring will create more value for shareholders than Northrop's offer.
Northrop's increase of its offer to TRW came as a surprise to some observers, because the company had said it would increase the offer only after TRW allowed its internal financial records to be reviewed.
"TRW has not opened up its books, so the new bid contradicts a previous Northrop Grumman stance," Merrill Lynch analyst Byron Callan said in a research note yesterday. "It is not clear if Northrop Grumman believes $53 is a full and fair price, and, if so, why didn't management raise its bid weeks ago?"
Northrop is seeking to acquire TRW to become a major player in the area of space systems and missile defense, where it has lagged behind bigger rivals Lockheed Martin, Boeing and Raytheon.
If the takeover of TRW goes through, analysts say that based on sales, Northrop Grumman could surpass Lockheed Martin as the top U.S. defense contractor. It has been an aggressive acquirer of companies, purchasing Newport News Shipbuilding and Litton Industries last year. Despite the size of a company formed by a merger between Northrop and TRW, there has been little objection from antitrust activists, in part because it would create increased competition in the area of space systems and missile-defense projects.
Northrop said it increased its offer because of "improving economic conditions, which drive TRW's end markets and continuing positive developments in the defense industry." Shares of TRW and Northrop Grumman have increased 58 percent and 21 percent, respectively, since September 11.
The vote April 22 is required under Ohio law, which says shareholders must approve any move in which one company seeks to acquire more than 20 percent of the shares of another company. Northrop has filed suit against the state of Ohio for a law that disallows voting by arbitragers, any shareholder who purchased more than $250,000 worth of stock after a bid is made public. An Ohio District Court judge said yesterday that he would rule after the April 22 meeting.

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