Northrop Grumman 'alive and well,' CEO says Lockheed merger sought, but not vital

Aerospace

June 09, 1998|By Greg Schneider | Greg Schneider,SUN STAFF

CRYSTAL CITY, Va. -- Kent Kresa wanted Wall Street's assembled mental muscle to know one thing yesterday about his company.

"Northrop Grumman," said Kresa, the corporation's president, chief executive officer and chairman, "is alive and well." The ongoing court battle against government regulators to win the right to merge with Bethesda-based Lockheed Martin Corp. has been "a diversion of all our attention," Kresa conceded.

But the executive, speaking at an annual aerospace finance conference in a Northern Virginia hotel, insisted repeatedly that Northrop Grumman remains prepared to thrive on its own if the merger falls through.

"We may have dropped a few stitches [while dealing with the court fight], but we clearly have as bright a future today as an independent company as we ever had before," Kresa said.

Lockheed Martin is trying to acquire Los Angeles-based Northrop Grumman for about $11 billion. The government wanted the companies to spin off all of Northrop Grumman's defense electronics businesses, including the Electronic Sensors & Systems Division in Linthicum.

But ESSD, as the division is known, was one of the prime reasons that Lockheed Martin wanted to acquire the company in the first place. The division makes advanced radars, such as those on the F-16 and F-22 fighter planes, and other devices such as radar jammers and underwater surveillance equipment.

At least two European companies -- Britain's General Electric Co. PLC and Germany's Daimler-Benz Aerospace AG -- have made known in recent weeks that they would like to feast on any corporate crumbs thrown off by the merger. Some have even speculated that GEC would attempt to buy Northrop Grumman outright should the Lockheed Martin deal collapse.

Kresa declined yesterday to talk specifically about such possible deals, but did suggest that the defense industry in general is not ready for major tie-ups between U.S. and European companies.

"There are things that are going to happen in this decade, but there are great impediments to it," he said. Cultural and governmental barriers make it likely that the first major relationships will involve U.S. and British firms, Kresa said.

The U.S. arm of the British company GEC, for instance, recently announced plans to buy Texas-based Tracor Inc. for $1.4 billion -- ranking the foreign-owned company as the sixth biggest U.S. defense contractor.

"That's a very logical move towards them being able to buy up Northrop Grumman," said Stuart McCutchan, who tracks such matters with his Defense Mergers & Acquisitions newsletter. Tracor, he said, could oversee ultra-sensitive work such as that done at the ESSD plant in Linthicum and report to a U.S. board of directors kept separate from the British parent.

But Kresa would not be lured into such speculation yesterday. During a brief interview, he said only that ESSD's status as one of the world's leading producers of radars ensures a good future for workers there. Left unsaid was the possibility that those workers could have a new home office this time next year, depending on whether government regulators force a divestiture or whether the merger fails.

"We're delighted they're a part of Northrop Grumman. Obviously, if we're independent, that's the way it will be. I can't speak to anything past that," Kresa said.

He said he remains committed to standing with Lockheed Martin in federal court until the end of this year, when a judge has promised to rule on the government's suit seeking to block the merger.

Otherwise, Kresa reiterated several times the theme that was his mantra even before Lockheed Martin showed up with flowers and chocolates, which is that Northrop Grumman is a perfectly good stand-alone company -- smaller than the industry's titans, but the biggest of all subcontractors.

He projected future growth for the company of 5 percent to 7 percent a year, mostly in defense electronics and information technology, which he said would help lead to "strong double-digit earnings."

Pub Date: 6/09/98

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