- The Washington Times - Saturday, February 23, 2002

Northrop Grumman made an unsolicited, $11 billion offer yesterday for TRW Inc., in a move to surpass Lockheed Martin as the largest U.S. defense contractor.
The bid, in stock and assumed debt, was hailed by analysts as a shrewd, but perhaps sneaky, move by Northrop Grumman, the Los Angeles defense company that recently acquired Newport News Shipbuilding.
TRW, a Cleveland company with heavy involvement in automotive parts as well as missile defense, electronics and space technologies, said Northrop Grumman's bid was too low, and criticized the company for making the offer just two days after the resignation of TRW's chief executive.
"TRW finds it regrettable that Northrop Grumman has decided to make this proposal immediately following the unexpected departure of its former Chief Executive Officer, David Cote, and the aberrationally low stock price that resulted," TRW said in a statement.
However, it did not reject the bid outright and said it would examine the best course of action for its shareholders.
Northrop Grumman, the second-largest U.S. defense contractor, said it would pay up to $47 per share of TRW stock. Analysts said TRW was worth at least $10 per share more than that.
Shares of TRW, which had traded at more than $60 on the New York Stock Exchange just a year ago, closed yesterday at $50.30. The share price had dropped to under $40 after the announcement of Mr. Cote's departure.
"[Northrop Grumman is] doing this at a very opportune time, with the chairman of TRW leaving two days ago," said Paul Nisbet, an analyst with JSA Research in Newport, R.I. "Making it public as they did certainly means it's a hostile bid. [Northrop Grumman Chairman and CEO] Kent Kresa is soft-spoken, but he carries a big stick."
Analysts said that while Northrop Grumman's bid for TRW was unexpected, it was clearly well planned. A combination of the two companies would make a formidable player in the field of missile defense, an area that is seen as poised for growth under the Bush defense budget. A joining of the two companies also would make Northrop Grumman a larger player in space of defense information systems.
Northrop Grumman already has outlined plans to separate TRW's automotive parts business, which accounts for three-fourths of TRW's sales but is seen by some investors as having slow-growth prospects.
Ron Sugar, Northrop Grumman president and chief operating officer, was an executive with TRW until 2000. It is believed that his inside knowledge of the company was instrumental in forming the takeover bid.
"I think Northrop Grumman must have a very clear game plan in mind," Mr. Nisbet said. "They know more about the insides of [TRW] than any potential bidder, probably."
Northrop Grumman said it can conclude an agreement with TRW no later than March 11, but analysts said negotiations between the two companies likely will drag on longer, particularly if other defense contractors offer competing bids.
Analysts said General Dynamics of Falls Church is considered a leading candidate for such a bid. The company declined to comment yesterday.
Lockheed Martin's name also has surfaced, but analysts said antitrust concerns would likely derail any talks between the company and TRW.
Even without the automotive parts business, Northrop Grumman's sales would top $25 billion in 2003, rivaling the sales of Lockheed Martin of Bethesda, the top U.S. defense contractor.
But most analysts said the "number one" distinction is significant in name only.
"These guys are up there in rarified air," said Chris Hellman, a senior analyst with the Center for Defense Information in the District. "They are so far ahead of everyone else the difference is not that great."
Shares of Northrop Grumman closed at $109.95 on the New York Stock Exchange yesterday, down $7.85, or 6.7 percent.



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