Calif. suit claims Northrop hid news of failed merger Executives allegedly benefited as stock soared over deal with Lockheed

Mergers

July 25, 1998|By BLOOMBERG NEWS

LOS ANGELES -- Northrop Grumman Corp., the sixth largest U.S. defense contractor, was sued yesterday by a shareholder who said executives artificially inflated its share price by hiding news that Lockheed Martin Corp.'s acquisition of Northrop wouldn't be completed.

The suit, filed in state court in Los Angeles, claims Northrop officials made misleading statements about the U.S. government's antitrust objections to Lockheed's $10.7 billion purchase of the maker of B-2 bomber.

That propped up Northrop's stock while insiders sold more than $10 million in shares in a month, the suit claims.

Executives withheld information about the busted deal until after shareholders approved the purchase in February, thereby reaping as much as $160 million in stock options and payouts from a transaction they knew wouldn't take place, the suit claims.

'Looted treasury'

"Northrop's top executives and key employees have looted Northrop's treasury of $150 million to $160 million" by pushing investors to back Lockheed's bid, Anna Marie Zabielski, the Northrop shareholder, said in her lawsuit.

Northrop denied that its executives acted improperly in the Lockheed bid and that its officials complied with all securities regulations.

Northrop's shares have fallen about 35 percent since March when the U.S. government sued to block Lockheed's acquisition of the Los Angeles defense and aerospace company because of concerns that it would eliminate competition in the shrinking defense industry.

Last week, the Bethesda company dropped its bid for Northrop, whose shares fell 31.25 cents yesterday to close at $85.76.

"As stated repeatedly in the past, the company was surprised that the government was fundamentally opposed to its merger with Lockheed," Northrop said in a statement.

Had it known, it wouldn't have asked shareholders to approve the transaction, the company said.

Zabielski is asking a California judge to order Northrop executives to return profits from stock sales or payouts tied to the Lockheed acquisition to Northrop's coffers and to pay unspecified damages.

Pub Date: 7/25/98

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