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BAE CONFIRMS TALKS WITH TRW – A BLOCK LIKLEY BY US

11 Jun 02. Talks between BAE Systems and TRW are likely to focus on the US group’s space and electronic systems division rather than on a bid that would compete with Northrop Grumman’s $6.7bn (£4.9bn) hostile offer, sources close to the company said yesterday (See BATTLESPACE ALERT Vol.4 ISSUE 22, June 10th 2002).

BAE, like Northrop, has signed a confidentiality agreement giving it access to information about TRW’s business.

James Roche, US Secretary of the Air Force, previously Group vice-president of Northrop Grumman and Edward Aldridge, head of acquisitions at the Pentagon are thought to oppose the deal in view of the sensitive nature of TRW’s space and missile technologies, it would be unthinkable for BAE to make any moves that could be construed as hostile.

The space and electronic systems business, which has elicited interest in the US from such companies as General Dynamics and L-3 Communications, forms the core business of TRW with the most scope for development (See TRW CONFIRMS CENTRAL ROLE IN U.S. LAND FORCES SYSTEMS, BATTLESPACE MARCH 02). A rump of TRW without these operations and the loss-making automotive unit would not be a palatable offering for a buyer and would struggle to retain its share price.

Whilst the top finance men struggle with the due diligence there must be cause for concern in the operating divisions at BAE Christchurch. TRW was asked by the MoD to prepare a paper on BOWMAN following the collapse of the Archer bid. It could have done it alone or with BAE. It chose the latter as it saw the possibility of major international collaborative possibilities post-BOWMAN. Management changes and the acquisition of Marconi saw TRW spurned as a partner and BAE made the presentation, directly to the MoD. The rest is history but perhaps BAE is now regretting its actions having lost the possibility of winning BOWMAN and now having to mend fences with senior TRW personnel.

The matter of TRW’s future lies in price and it is likely that when Northrop’s bid for TRW expires this Friday, the company could issue a knock-out blow

Whilst the possibility of BAE winning TRW looks unlikely it has given the company a chance to look at TRW’s books. It also confirms the vision championed by Dick Evans amongst others that the US not Europe is the way forward for BAE. The future of the Airbus shareholding could be decided in 2003, this could give the company immense firepower for a large US acquisition should it decide to sell.

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