Northrop Corp. launched a $2.04 billion tender offer yesterday to buy Grumman Corp., shocking Grumman and Wall Street and topping an offer for the defense contractor made just three days earlier by Martin Marietta Corp.
Bethesda-based Martin Marietta had hoped to forestall a bidding war for Grumman with its $1.9 billion cash offer.
It denounced the Northrop move, saying that it is "deeply disappointed that Northrop has chosen to launch a hostile attack that seeks to disrupt an agreement between Martin Marietta and Grumman for a friendly consolidation."
"The attack by Northrop degrades the entire character of the rational consolidation taking place within the United States' national security industrial base," Martin's statement said.
Grumman stock soared $6.75, to $61.75, in after-hours trading ,, yesterday. Since Northrop's offer for Grumman is only $60 a share, investors apparently believe that there will be a another bid from Martin Marietta, or perhaps another company. Grumman's stock has shot up nearly 70 percent since last
"Shareholders are sure getting a sweetheart of a deal," said Paul H. Nisbit, president of JSA Research in Newport, R.I., which concentrates on the defense and aerospace industry. "It's turning out better than they could have ever dreamed it would."
Mr. Nisbit was among the majority of analysts who discounted the prospects for a bidding war on Wednesday, after Securities and Exchange Commission filings revealed that Northrop had also been interested in acquiring Grumman.
"I'm totally shocked," Mr. Nisbit said yesterday.
While Martin protested Northrop's sudden strike, Northrop said that it believes that the so-called "lock-up agreement" entered into by Grumman and Martin is "improper and illegal."
Under the agreement, Grumman said it would end any existing talks with other merger partners and not solicit other offers. Grumman would have to pay Martin Marietta $50 million if their agreement is terminated and Grumman enters into another acquisition agreement within one year. Northrop officials pointed out that there is a principle of corporate law that, when a com
pany is for sale, directors have a duty to shareholders to seek the highest price.
A Delaware court underscored that point in December, with a ruling that forced Paramount Communications Inc.'s board to reopen bidding after it had already agreed to a merger with Viacom Inc.
The state Supreme Court said Paramount had to seek the highest price it could obtain and had to actively consider bidders other than Viacom. Viacom was forced to sweeten its bid several times before Paramount shareholders finally accepted its $10 billion offer over QVC Network Inc.'s bid.
Los Angeles-based Northrop has been holding talks with Grumman for more than a year concerning a possible merger and indicated as recently as Feb. 25 that it was ready to make a $50-a-share or more offer for Grumman.
During a teleconference with reporters and analysts last night, Northrop Chief Executive Officer Kent Kresa said his company had not made the offer "because we had no knowledge [Grumman was] for sale," until after Martin Marietta's $55-per-share offer was announced Monday morning.
"[Grumman] never asked for our best and final offer," Mr. Kresa said. "We were told at a certain point that they no longer wished to speak to us."
Robert Harwood, a spokesman for Grumman, said the company was studying the Northrop offer but declined to make any further comment. Martin Marietta said it would respond "to Northrop's action in an appropriate manner at the appropriate time."
Martin Marietta had made what was considered by analysts a fair cash offer for Grumman, instead of a stock offer, in hope of avoiding inter ference from outside parties that would result in a bidding war.
Northrop's bid is also a cash offer, and the company said it has financing commitments totaling $2.8 billion from Chase Manhattan Bank N. A. and Chemical Bank.
Mr. Kresa also said that Northrop is prepared, upon completion of the acquisition, to recommend to its stockholders that the corporation's name be changed to the Northrop-Grumman Corp. "preserve the proud heritage of the Grumman name in U.S. military aviation." Martin has not offered to keep the Grumman corporate name.
Grumman, with 18,000 employees and annual sales of $3 billion, is known for its production of the Navy's swept-wing, twin-engine F-14 Tomcat fighter and is also a leading builder of electronics components for airplanes.
Despite its storied name in military aviation, the Long Island, N.Y.-based company has been struggling since the end of the Cold War. In announcing the merger agreement with Martin, Grumman Chairman Renso Caporali conceded that Grumman "could not thrive in the current business climate without making a significant strategic move."
Mr. Kresa said a combined Northrop and Grumman would be better able to compete for dwindling defense contracts.
"We believe Northrop-Grumman together will create a formidable competitor in bomber, fighter, electronic warfare, surveillance and strike aircraft, as well as in commercial and military aerostructures, electronics and information systems," Mr. Kresa said. "For instance, the combined business will have extensive experience in both U.S. Navy and U.S. Air Force combat aircraft."
Northrop, which makes the F-15 Hornet fighter plane and the B-2 Stealth bomber, has nearly 30,000 employees and had 1993 sales of $5.1 billion.