Northrop willing to delay run at TRW

75-day standstill of hostile offer proposed to let talks get started

May 02, 2002|By BLOOMBERG NEWS

LOS ANGELES - Northrop Grumman Corp., the fourth-largest U.S. defense contractor, said yesterday that it is willing to halt its $12.2 billion hostile offer for TRW Inc. for 75 days to begin talks with the smaller contractor and auto-parts maker.

TRW, which described the bid as inadequate, has insisted that Northrop delay a tender offer for three years through a so-called standstill agreement as a condition for opening talks, Northrop said. TRW responded in a statement, saying it is willing to "address the standstill period's length."

The statements, along with a two-page Northrop advertisement in The Wall Street Journal, follow by two days TRW shareholders' scheduled vote on a proposal that would allow Northrop to proceed with its offer.

Northrop, which initiated the bid in February and raised it last month, said it will walk away if the proposal doesn't pass.

"Northrop management is getting frustrated with the process," said Jonathan Schrader, an analyst with Morningstar Inc.. Schrader says he doesn't own Northrop stock and advises clients not to.

Los Angeles-based Northrop is offering to buy Cleveland-based TRW, the eighth-largest military contractor, for $6.7 billion and the assumption of about $5.5 billion in debt.

Shares of Northrop rose $4.02 yesterday to close at $124.68. Based on terms of its bid, the company's $53-a-share offer increases when its stock price rises above $123.

TRW rose 51 cents to $51.54. Its share price is an indication investors believe that Northrop, or another company, will bid higher.

Arguments over standstill agreements aren't unusual during hostile takeovers.

The acquiring company typically wants to move quickly, while the target tries to stall, said Scott Keller, head of the merger research firm Dealanalytics.com.

Northrop's 75-day proposition isn't much of a concession because a tender offer probably would take that long, he said.

"If I was TRW, I would laugh at it," Keller said. Still, TRW's proposed three-year standstill is "stretching it," because such agreements are usually for about one to two years, he said.

Northrop Treasurer Albert Myers said his company is willing to sign a standstill agreement as a goodwill gesture to TRW's management but won't agree to more than 75 days.

Northrop Chief Executive Officer Kent Kresa has telephoned TRW shareholders to lobby for support as tomorrow's vote approaches.

"Shareholder approval of this proposal will keep [TRW shareholders'] options open by enabling them to consider our offer after due diligence," Kresa said in a statement.

TRW accused Northrop of trying to mislead its shareholders. The two companies have been in almost daily communication for the past week by phone or mail, TRW said in its statement.

"TRW invited Northrop to sit down and discuss the terms of a mutually agreeable confidentiality agreement, but Northrop and its representatives declined to do so," TRW said, referring to last week's annual shareholder meeting.

Northrop, maker of the Global Hawk unmanned aerial vehicle being used in Afghanistan, wants to buy TRW to bolster its military space business.

The company also is the world's largest builder of military ships.

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