Newport News to talk to suitor it rejected

Rise in stock forces shipyard to consider bid by Northrop

October 06, 2001|By BLOOMBERG NEWS

NEWPORT NEWS, Va. - Newport News Shipbuilding Inc., which agreed to be acquired by General Dynamics Corp. for $2.6 billion, said yesterday that it will begin talks with Northrop Grumman Corp. about a higher offer.

Newport News, a maker of nuclear submarines and aircraft carriers, decided to open talks because the recent rise of Northrop's stock price has boosted the value of its cash-and-stock offer. The offer is now worth about $72.67 for each Newport News share.

Newport News initially backed the cash offer from General Dynamics, the owner of Maine's Bath Iron Works and Connecticut's Electric Boat Co. The offer is worth $67.50 per Newport News share

In a statement, Newport News reaffirmed its support for General Dynamics' bid "because there is no assurance" that a deal would be struck with Northrop, but said the rival offer could be superior.

"What people are afraid of is the volatility in Northrop's share price," said Scott Keller, an analyst at Dealanalytics.com, who rates General Dynamics and Northrop stock a "hold" and doesn't own their shares.

"If Northrop's share price goes down below $100, the premium to General Dynamics' offer disappears."

Shares of Los Angeles-based Northrop rose $1.50 yesterday to $107.50. They have risen 31 percent since the Sept. 11 terrorist attacks.

"We are pleased to see that the Newport News board of directors continues to recommend the General Dynamics offer," said Kendell Pease, a spokesman for General Dynamics.

Pease said General Dynamics' bid represents "real savings to the Navy" and gives "solid, measurable and enduring value to the shareholders of Newport News."

Edward C. "Pete" Aldridge, the Pentagon's under secretary for acquisitions, told The Wall Street Journal earlier this week that the agency was "comfortable" with letting Newport News shareholders pick a buyer for their company.

The Pentagon is planning to send its recommendation to the Department of Justice on the merger next week. Both agencies need to approve the transaction.

Newport News agreed to be acquired by General Dynamics on April 25 for $2.6 billion. Northrop, which matched that offer on May 9, said its proposal has a better chance of gaining regulatory approval because it would maintain competition.

Shares of Newport News rose 37 cents to $72.77. General Dynamics rose $1.12 to $92.60.

Reuters news service contributed to this article.

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