TRW directors urge rejection of takeover

Northrop Grumman offer is raised to $53 per share but still called inadequate

April 18, 2002|By Robert Little | Robert Little,SUN STAFF

The directors of TRW Inc. urged shareholders to reject Northrop Grumman Corp.'s latest takeover bid yesterday, calling the $53-per-share offer "financially inadequate."

The move came on the same day that both companies released solid quarterly earnings reports, adding fuel to a hostile takeover effort that is headed for a showdown early next week.

TRW shareholders are scheduled to vote April 22 whether to share confidential financial information with Northrop Grumman and begin intensive negotiations for a takeover. Officials at TRW have asked for a delay of that vote, but Northrop Grumman has declined.

TRW officials offered yesterday to immediately begin sharing financial information with Northrop Grumman or any other potential suitor. But Northrop Grumman Chairman and Chief Executive Officer Kent Kresa was skeptical of the offer, and continued making his case for a takeover directly to TRW shareholders.

"The big question now is whether TRW will seek to impose unreasonable conditions, such as a halt to the pending exchange offer," Kresa said in a statement. "The only thing that has brought TRW even this far is the pressure of the pending shareholder vote."

Northrop Grumman, the nation's third-largest defense contractor, wants to absorb TRW's $6 billion-a-year space electronics business and sell its automotive-parts division. If the deal goes through, Northrop Grumman could eclipse Lockheed Martin Corp. as the largest defense contractor.

Northrop Grumman has been on an acquisition binge the past two years, buying large defense firms Litton Industries, Newport News Shipbuilding and the electronics unit of Aerojet General Corp. The growth was evident in the earnings announced yesterday, with first-quarter sales rising from $2 billion last year to $4.1 billion this year.

First-quarter income rose from $132 million last year to $149 million this year, despite a sharp decline in pension income that has buoyed the company's returns in the past. Earnings per share were $1.27 this year compared with $1.81 per share last year, a disparity caused by a 55 percent increase in the number of shares outstanding.

TRW's first-quarter operating earnings were $92 million, or 71 cents per share, up from $74 million, or 59 cents per share, a year earlier.

Northrop Grumman offered to buy TRW for $47 a share in February, and increased the bid to $53 a share this week. Some analysts expect the offer to creep still higher.

"I imagine if TRW's shareholders vote to give Northrop Grumman access to the books - as I suspect they will - then the two companies could sit down and negotiate a price that's a little higher than $53," said Paul Nisbet, an analyst for JSA Research Inc. in Newport, R.I.

"The TRW shareholders should be happy. Their stock was trading in the 30s before this, and there's no reason why it wouldn't fall back down there again if this deal falls apart."

Shares of TRW, which traded for $39.80 the day before Northrop Grumman announced its takeover bid in February, rose $1.47 yesterday to close at $53.85 on the New York Stock Exchange.

Northrop Grumman shares fell $2.86 to close at $113.88.

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