Grumman to open talks with Northrop

March 25, 1994|By Ted Shelsby | Ted Shelsby,Sun Staff Writer

Grumman Corp. directors last night authorized the Bethpage, N.Y.-based defense contractor to enter into discussions with Northrop Corp. to clarify terms of its takeover offer.

The board emphasized, however, that it was not approving acquisition negotiations with the Los Angeles-based company, which on March 11 launched a hostile $2.04 billion bid for Grumman.

The board's decision was a victory for Northrop, which topped Martin Marietta Corp.'s offer of $1.93 billion with its bid. Northrop had been seeking the talks in hopes of reaching a friendly buyout agreement with Grumman.

"We are pleased with their decision and look forward to future discussions with Grumman," Northrop spokesman Tony Cantafio said.

The latest development follows an exchange of letters between Northrop and Grumman over the past two days in which Northrop indicated that it was prepared to raise its bid for Grumman if Martin Marietta counters with a higher offer.

In a letter to J. R. Anderson, chief financial officer of Grumman, Northrop Chief Financial Officer Richard B. Waugh Jr. said Northrop wanted assurance from Grumman that it would not revise the existing Grumman-Martin Marietta merger agreement in a way that would create any barriers to Northrop's acquisition of Grumman.

Northrop also wanted a guarantee that Grumman would take no action that would interfere with open bidding for control of Grumman.

"We are very firmly of the view that there is greater value in a combination of Grumman with Northrop than with Martin Marietta, and the results of a free and open bidding process will confirm that view," Mr. Waugh wrote.

Mr. Anderson wrote back that Grumman would not take any action that its board did not think was in the interest of Grumman's stockholders.

On March 7, Martin Marietta reached a agreement with Grumman to acquire the Bethpage company for $1.93 billion, or $55 a share share. Three days later, Northrop proposed buying Grumman for $2.04 billion, or $60 a share.

Northrop had been holding talks with Grumman prior to Grumman's decision to accept Martin Marietta's buyout offer. During its discussions with Grumman, Northrop agreed to a "standstill" agreement that prohibited it from making an unsolicited offer for Grumman before 1996. But Northrop has said it considers the agreement void because it did not realize at the time that Grumman was for sale.

Yesterday's moves come amid increased speculation on Wall Street that Martin Marietta could be rallying its forces to take over Northrop. Martin Marietta is said to be considering acting on its own or forming an alliance with other companies to bid for Northrop.

The Seattle Times reported yesterday that Seattle-based Boeing has been mentioned as a potential partner with Martin Marietta to buy Northrop.

The Wall Street Journal, quoting unnamed industry sources, reported yesterday that such a move could even come after a merger of Northrop and Grumman is completed.

Charles P. Manor, a spokesman for Bethesda-based Martin Marietta, said last night that it would not be appropriate for the company to respond to the Grumman board's decision.

Mr. Manor also said the company would not comment on the rumors that it was preparing to take over Northrop.

In an unrelated development, Northrop said yesterday that it expects to slash another 3,000 jobs, 10 percent of its work force, as the defense industry continues to shrink.

In a letter to shareholders in Northrop's annual report, Chairman, President and Chief Executive Kent Kresa also projected higher profits but weaker sales this year.

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