TRW deal a winner, Northrop says

Company is seeking to reassure Wall Street

target yet to respond

February 28, 2002|By Robert Little | Robert Little,SUN STAFF

Northrop Grumman Corp. tried to assure Wall Street yesterday that its $10.9 billion bid for TRW Inc. will not saddle the defense contractor with an unwanted auto-parts division and billions of dollars in excess debt.

Chief Executive Officer Kent Kresa said he already has prospective buyers for TRW's automotive division, which Northrop Grum- man plans to sell if it acquires TRW. And while Northrop Grumman would assume roughly $4.9 billion in debt as part of the deal, the company would still maintain "investment grade" debt levels, Kresa said.

"We've acquired about 14 different companies, and in virtually each case the market was very skeptical and concerned that we could pull it off," Kresa said during an industrial manufacturing conference sponsored by Salomon Smith Barney.

"We view this as quite an easy integration job, compared to the ones we've already demonstrated that we can do."

Northrop Grumman made an unsolicited bid last week to purchase TRW, an automotive and defense products manufacturer based in Cleveland, for $47 worth of stock for each share. Some Wall Street analysts say the offer is too low, and expect other companies to make competing bids.

Northrop Grumman had asked for a response by the close of business yesterday. But officials at TRW asked for more time, releasing a statement saying they have engaged financial and legal advisers and will reply to the offer "promptly and in an orderly manner."

Northrop Grumman has indicated that it might fight for TRW. Earlier this week it hired the proxy solicitation firm D.F. King & Co. to take its offer directly to TRW shareholders, if necessary. Northrop Grumman could eclipse Lockheed Martin Corp. to become the nation's largest defense contractor if the merger takes place.

"It appears to have been thought through very thoroughly by the people at the top," said Tom Burnett, president of the mergers and acquisition research firm Merger Insight. "Will it happen? I can't handicap it at this point. But it's not going to trade at $47, that's for sure. Somewhere in the mid-50s is more like it."

Northrop Grumman acquired Litton Industries and Newport News Shipbuilding last year to become the U.S. Navy's largest contractor. Its product line includes aircraft carriers, the B-2 bomber and numerous radar and electronics systems that are manufactured in Linthicum.

The deal would broaden Northrop Grumman's stake in the space systems and missile defense industries, both of which are expected to grow considerably during the Bush administration and beyond. Pentagon spokesman Glenn Flood said a merger would be subject to the scrutiny of the Department of Defense and the Department of Justice. "But at this point all we have are news reports, not any kind of formal proposal," he said.

On the New York Stock Exchange yesterday, shares of Northrop Grumman rose $1.38 to $109.10 - still down more than 8 percent from their closing price before the takeover offer was announced. Shares of TRW rose 80 cents to $51.55.

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