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NORTHROP NEARS TRW DEAL FOR $60 PER SHARE

1 Jul 02. The Wall Street Journal has reported that Northrop Grumman Corp. plans to acquire TRW Inc. for $7.56 billion in stock, a sweetened deal that would make Northrop the nation’s second-largest military contractor while ending TRW’s 101-year history as an innovator in the automotive, defense and aerospace industries, people familiar with the transaction said.

The pact, expected to be announced as early as this morning, ends a four-month standoff set in motion when Northrop launched a $5.9 billion hostile bid for TRW in February. Both boards approved the deal in Sunday meetings, these people said. The agreement calls for Northrop to provide $60 a share in stock for each share outstanding of TRW. That represents a 27% increase over the $47 a share Northrop initially offered TRW on Feb. 21 just two days after TRW’s then-chairman and chief executive, David Cote, suddenly quit to join another company.

A spokesman for Northrop and a spokeswoman for TRW declined to comment. When the deal closes, Northrop is also expected to take on about $4 billion in TRW debt.

This is the latest, major acquisition to hit the defense industry, extending a consolidation streak that began a decade ago with the Cold War’s end and has been re-ignited by increased military spending in the wake of new security threats. Among the players, Los Angeles-based Northrop has been the biggest acquirer in recent years, doubling its size with a string of big purchases including Litton Industries Inc. and Newport News Shipbuilding Inc.

But the TRW transaction is by far the largest and most controversial. Making a hostile bid on a wounded company is rare in the defense industry where the secretive nature of the work tends to foster personal relationships among longtime executives. With the purchase of TRW, Northrop, which already is the nation’s largest shipbuilder, would also become a leading player in the areas of military satellites and missile-defense systems, key focuses for Bush Administration spending. Only Lockheed Martin Corp. would be larger.

TRW’s space and electronics division as well as its systems-integration operation are considered its crown jewels. While these businesses provided just 12% of the company’s 2001 revenue of $16 billion, they make early-warning surveillance satellites that would detect a missile attack on the U.S. as well as the battle-management system expected to run the ground-based missile-defense system. TRW also is at the forefront of developing high-powered lethal lasers widely seen as the next frontier for stopping enemy missiles.

The acquisition ends a lineage that for Cleveland-based TRW began in 1901 when the Cleveland Cap Screw Co. made the first two-piece automotive value for Winton Motors Co. as well as the sodium-cooled engine valve that enabled Charles Lindbergh’s Spirit of St. Louis plane to make the first solo transatlantic flight. But the transaction marks a significant win for TRW executives and its bankers, Goldman Sachs and Credit Suisse First Boston, as well.

With no top executive and an aggressive hostile offer afoot, TRW and its advisers turned a tough situation into a very lucrative one. The agreed-upon price of $60 a share is at the high end of a range privately targeted by TRW even after Northrop officials raised their bid in April to $53 and just last week indicated they would go as high as $58.

The value of the bid can rise further because of a “collar” intended to allow TRW shareholders to benefit from gains in Northrop shares while protecting against any downside. In 4 p.m. New York Stock Exchange composite trading Friday, Northrop shares were at $125 each.

TRW, led by Philip Odeen, who had retired as the head of TRW’s Washington office just weeks before Mr. Cote’s resignation, devised a strategy that would keep the pressure on Northrop in the absence of rival bidders while keeping its options open. TRW repeatedly rejected Northrop’s offers as too low and “opportunistic” whil

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