Flash! Archive
June 2002
May 2002
April 2002
March 2002
February 2002
January 2002
December 2001
November 2001
October 2001
September 2001
August 2001
July 2001
June 2001
May 2001
April 2001
March 2001
February 2001
January 2001
December 2000
November 2000
October 2000
September 2000
August 2000
July 2000
June 2000
May 2000

Northrop Grumman Submits Offer to Takeover TRW

Northrop Grumman Corporation (NGC) made an unsolicited bid of US$5.9 billion to acquire TRW. With the assumption of debt, the bid value totals US$11.4 billion. TRW responded to the offer with a brief statement saying its board of directors would meet to decide the “appropriate course” of action. TRW has advised it’s shareholders to take no action while it considers the offer.

TRW has been the subject of takeover speculation for years. Northrop Grumman’s offer was probably prompted by the unexpected departure on February 19 of TRW’s former chief executive officer, David Cote. Other likely bidders for TRW might include Boeing, General Dynamics, Goodrich and Lockheed Martin. Offers from General Dynamics or Goodrich would likely face less scrutiny from government regulators than a merger of TRW with Boeing or Lockheed Martin. Other companies which might also be interested in TRW are Alliant TechSystems Inc., L3 Communications Holdings Corp. and GenCorp's Aerojet propulsion business. (GenCorp sold Aerojet's electronic information systems business to Northrop Grumman in 2001.) TRW may respond by issuing a break-up plan of its own. If separated, TRW’s defense business could attract higher value.

If the merger were to be approved it would result in four major defense contractors of roughly equal size: Northrop Grumman, Lockheed Martin Corp., Boeing Co. and Raytheon Co. The merger could also start a new round of consolidation in the industry if smaller companies start to consider mergers, or if other bidders for TRW emerge.

Under terms of the offer, Northrop Grumman would exchange US$47 in stock for each TRW share, an 18 percent premium over the company's closing share price of US$39.80. Based on the February 21 closing price on the NYSE, Northrop is offering 0.398 of its shares for each TRW share. Northrop Grumman would also assume about US$5.5 billion of TRW debt. Immediately following the close of the transaction, Northrop Grumman would sell or spin-off TRW's automotive business. Excluding TRW's automotive business, Northrop Grumman projects combined 2003 sales of approximately US$26 to 27 billion. The debt-to-capital ratio for Northrop Grumman would be at 40 percent by the end of 2002. TRW had 2001 sales of US$16.4 billion. TRW's automotive parts business accounted for 64 percent of TRW's sales and 58 percent of profits.

Northrop Grumman has about 100,000 employees in 44 states and 25 countries. TRW has about 94,000 workers. About 30,000 of TRW's employees have jobs with business units Northrop Grumman wants to keep, and there are no widespread job cuts expected in those divisions.

Northrop Grumman would benefit most from TRW's satellite production unit, which makes satellites used by the military for observation and to coordinate the movement of troops, ships and airplanes. TRW has built nearly 200 spacecraft. TRW has also been involved in the U.S. ballistic missile program for nearly 50 years, and is the Pentagon's prime contractor for intercontinental ballistic missiles.

Northrop Grumman has made 14 acquisitions since 1994. In 2001 it acquired Newport News Shipbuilding for US$2.1 billion. Also, in 2001 it paid US$3.8 billion to acquire Litton Industries. In 1998 Lockheed Martin attempted to purchase Northrop Grumman, but abandoned its plans in the face of U.S. antitrust concerns.

The Defense Department and Justice Department would have to approve Northrop Grumman's acquisition of TRW, but there do not seem to be any significant antitrust hurdles. However, the merger would reduce the number of space defense systems competitors to two: Northrop Grumman and Lockheed Martin. The Pentagon might look favorably on a NGC-TRW combination because it would create a horizontally integrated company capable of rivaling Lockheed Martin and Boeing. Comparing the total value of contract awards, Lockheed Martin was the top U.S. defense contractor in 2001; Boeing was ranked second; Northrop Grumman, combined with Newport News, was ranked third; and TRW ranked seventh. A NGC-TRW merger would also need approval from the European Union.

SPACEandTECH Digest is a weekly roundup of the latest industry news of interest to the space professional. SPACEandTECH Flash! is an internet push service offered by Andrews Space & Technology to bring the latest on orders, launches, and important breaking news to your desktop. SPACEandTECH Digest and SPACEandTECH Flash! are part of the Andrews Space & Technology www.spaceandtech.com website, a website designed to serve the information needs of the space industry.

If you would like to subscribe to the SPACEandTECH Flash! (currently a free service), contact the www.spaceandtech.com Editor-in-Chief, Joe Hopkins, at editor@spaceandtech.com

February 22, 2002