Northrop Grumman agrees to buy TRW for $7.8 billion in stock

Monday, July 1st 2002, 12:00 am

By: News On 6

(CLEVELAND) - After four months of wrangling, defense contractor Northrop Grumman Corp. has agreed to buy TRW Inc. for $7.8 billion in stock, nearly $2 billion more than it originally offered.

The deal announced Monday will make Northrop the nation's second largest defense contractor with projected annual revenues of more than $26 billion and approximately 123,000 employees.

It also caps more than five years of efforts to transform Northrop from the prime contractor on the B-2 Stealth bomber to the country's largest shipbuilder, a leader in unmanned and computer warfare, and a major diversified defense contractor on par with Boeing Co. and Lockheed Martin Corp.

Northrop's rapid growth came as it bought Litton Industries, then Newport News Shipbuilding and several other smaller companies. But the bid for TRW was its largest so far.

TRW manufactures space and defense products including spacecraft and satellites, defense communications equipment and high-energy lasers. Northrop makes planes, ships and computer warfare systems, among other things.

Northrop said it anticipates few changes in employment after it combines its defense operations with TRW's defense units.

Northrop said it will pay $60 a share in its stock for each TRW share, or 27 percent more than it had initially offered in February. TRW closed at $56.98 a share on Friday in trading on the New York Stock Exchange.

In February, Northrop offered $5.9 billion in stock _ or $47 per share _ for Cleveland-based TRW.

When TRW said the offer underestimated the value of the company, Los Angeles-based Northrop raised its bid to $6.7 billion, or $53 per share.

TRW executives said the increased offer was still too low, and shareholders rejected several Northrop proposals to force TRW to accept the bid. Northrop ultimately agreed to sit down with TRW and negotiate a new price, which resulted in Monday's announcement.

TRW will still sell its aeronautical systems business to aerospace parts maker Goodrich Corp. for $1.5 billion in cash, a deal that was announced in June.

Northrop also will spin off TRW's auto parts business, either through a sale or as a stand-alone company. TRW executives had planned to separate the auto parts business as part of the company's broad restructuring plan.

In Tennessee, TRW operates auto parts manufacturing facilities in Cookeville, Lebanon, Rogersville, Sevierville and Vonore.

``When we first proposed to acquire TRW, we stated that we were prepared to pay full and fair value for the company,'' said Northrop chairman Kent Kresa.

TRW chairman Philip Odeen said that for the past several months, the company has ``undertaken a comprehensive strategic review with the sole objective of enhancing shareholder value. This transaction achieves that objective.''

The sale must still be approved by shareholders of both companies and federal regulators, but the companies said they expected the deal to be completed by the end of the year.