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TRW AGREES TERMS WITH NORTHROP

TRW AGREES TERMS WITH NORTHROP CREATING NORTHROP’S BIGGEST DEAL

1 July 02. Today U.S. defense contractor Northrop Grumman Corp. (NYSE:NOC – News) agreed to buy defense and auto parts group TRW Inc. (NYSE:TRW – News) in a sweetened deal worth $7.8bn, ending a four-month standoff between the companies.

At a press conference held today, Northrop’s Kent Kresa said that this was the largest deal Northrop had undertaken and has created a very important company for the defense of the United States. He went on to stress the importance of the combined company’s technology in surveillance systems, database products and advanced electronics in contributing to Homeland Defense projects. Homeland Defense was already contributing to enhanced earnings in the second quarter.

TRW’s Philip Odeen welcomed the deal and said that the Northrop offer represented the best value for money in terms of shareholder value. The $4bn in debt assumed by the deal would not affect the combined company’s ratings and indeed with the All Stock Transaction this would reduce to 30% debt to capital ratio.

The deal will strengthen Northrop’s position in satellite communications, military communications and systems and missile systems. The deal to acquire Litton gave Northrop a strong boost to its U.S. Army related contracts. Litton is a major supplier of GTAC computers to the U.S. Army’s TRW-run FBCB2 programme. The TRW deal will strengthen Northrop’s U.S. Army business in that it has now acquired the FBCB2 contract and TRW’s expertise in such bids as the WIN-T programme (Se BATTLESPACE TECHNOLOGIES Vol.5 Issues 1&2, June 2002). The combined company will meet Lockheed Martin head to head in a number of C4ISTAR bids and provide an excellent contractor base to meet the growing number of requirements provided by the FCS, IBCT, JTRS and Guardrail programs where the company is a member of the Boeing Team. In addition TRW has tremendous technology in satellite and space products and is a major contributor to the airborne laser system part of the missile defence shield. TRW will also contribute hugely to General Jumper’s MC2A vision which involves a whole new fleet and constellation of sensor aircraft developed by a consortium of three companies which include Northrop Grumman and Raytheon.

Under the terms of the deal, one of the largest in the defense field since the industry consolidated in the 1990s, Northrop is offering the equivalent of $60 for each TRW share.

The companies, in a joint statement, said Los Angeles-based Northrop is offering $60 in Northrop stock. or between 0.4348 and 0.5357 Northrop share, for each TRW share, depending on Northrop’s stock price.

“It’s a good deal,” said Paul Nisbet, aerospace analyst at JSA Research Inc. “If (TRW’s) stock price hadn’t gone up considerably, (Northrop) probably wouldn’t have bid anywhere near as high.”

Northrop also will assume more than $5bn of TRW debt, stamping an enterprise value of about $12.6bn on the whole transaction.

The amount of debt will be reduced by about $1bn after TRW receives
proceeds of $1.5bn from the agreed sale of its aeronautics unit to
Goodrich Corp. (NYSE:GR – News).

TRW shares rose 84 cents to $57.82 in early trade on the New York Stock
Exchange. Northrop shares, which also trade on the NYSE, shed $2.30, or 1.84 percent, to $122.70.

Northrop said it plans to either spin off or sell TRW’s automotive parts business. More than one bidder has offered to buy up to a 20 percent of the business, but no party has bid for the entire business, according to sources familiar with the situation.

Northrop said the its acquisition of TRW is expected to close by year-end and will help it show earnings growth next year in the double digits in percentage terms.

Comment: Well Kent Kresa has now pulled off the biggest deal of his career as we expected. Having fought off the advances of Lockheed Martin, Kresa has now built Northrop Grumman into a formidable company

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