Northrop's quest for TRW takes a turn to the unusual

Hostile takeovers are rare events in defense industry

March 05, 2002|By Robert Little | Robert Little,SUN STAFF

By choosing to wage a hostile takeover bid for TRW Inc., Northrop Grumman Corp. picked a fight not just with TRW's management but also with Ohio's tough anti-takeover laws and a host of skeptics on Wall Street intent on driving up the price, analysts said yesterday.

Observers seemed surprised by Northrop Grum- man's decision to take its $47-per-share buyout offer straight to TRW's shareholders, one day after TRW's board rejected the offer as "financially inadequate."

Not only could the move add costs to a deal already considered a stretch for Northrop Grumman, they said, but it also could enflame an industry where hostile suitors are often not well received.

"A history of hostile takeovers in the defense industry would be a short book with an unhappy ending," said Stuart McCutchan, editor of the newsletter Defense Mergers & Acquisitions. "Aggressive is one thing, but hostile is unusual in this industry.

"Northrop Grumman has been very successful with acquisitions, but I can't help but think that maybe they're shooting from the hip on this one."

TRW's board of directors urged shareholders not to respond to Northrop Grum- man's latest buy-out tactic yesterday, saying it will study the hostile bid and issue a recommendation by March 15. Northrop Grumman's offer to shareholders expires March 29 at midnight.

Northrop Grumman officials reiterated their offer to negotiate a friendly merger with TRW, but also took steps to seize control of the company regardless of whether its management wants to talk.

A key hurdle will be a set of Ohio laws designed to thwart just the kind of takeover that Northrop Grumman is waging. The laws, among the toughest in the nation, would prohibit Northrop Grumman from merging with TRW within three years of acquiring more than 10 percent of its stock.

They also would prohibit votes on a merger from any shareholder who acquired stock after the first takeover offer was made.

Northrop Grumman filed a federal lawsuit in Ohio yesterday challenging the laws.

"We believe that all or parts of the Ohio takeover laws may be invalid," said Northrop Grumman spokesman Randy Belote.

"They go beyond what the Supreme Court has upheld in other states, and they discriminate against certain stockholders," Belote said.

Shares in TRW closed at $50.60 on the New York Stock Exchange yesterday, reinforcing suggestions that Northrop Grumman's $47 offer is too low. But Northrop Grumman called its $47-per-share offer an "earnings neutral" transaction, and could be strapped to pay much more without diluting its own shares and lowering their value for stockholders.

Those complications, combined with the widely held speculation that another bidder might yet enter the fray, lead to a future pocked with trouble, analysts said.

McCutchan likened the Northrop Grumman proposal to Bendix Corp.'s hostile bid for Martin Marietta in the early 1980s. Bendix failed and was later acquired itself by Allied Signal Inc.

"It's too difficult to complete an entirely hostile transaction," said Win Murray, an analyst with Columbia Management Group, which oversees about $170 billion in assets, including shares of both companies. "Northrop is going to have to raise its offer to get TRW to the bargaining table."

Northrop Grumman's shares fell $4.25 yesterday to close at $103.50, a decline of nearly 4 percent.

Bloomberg News contributed to this article.

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