Northrop targets TRW in bid to create defence giant

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The Independent Online

Northrop Grumman, the US defence company behind the B-2 stealth bomber, made an unsolicited $6bn offer for its rival TRW, in a move that could produce a new powerhouse in the sector.

However, in what appeared to be a first shot in TRW's resistance to the all-share bid, the target company said the approach was opportunist.

"TRW finds it regrettable that Northrop Grumman has chosen to make this proposal immediately following the unexpected departure of its former chief executive officer, David Cote, and the aberrationally low stock price that resulted."

Northrop said it would dispose of TRW's car components business, which makes airbags and engine parts and accounts for nearly two-thirds of TRW's annual revenues. TRW has 25 plants in the UK as a result of its acquisition of the car parts and aerospace group LucasVarity in 1999. Northrop's chief executive, Kent Kresa, said that he had already spoken to a potential buyer for the auto division.

Seven of the sites in the UK are part of its aeronautical systems group, which has contracts with the MoD for battle-field communications and the Joint Strike Fighter project as well as with Airbus.

A merger of TRW's aerospace arm with Northrop would create a business with an annual turnover of $27bn, challenging Boeing as the number two US defence contractor behind Lockheed Martin at a time when the Bush administration is looking to raise its defence budget by one-third.

The combination would be a major force in satellite and missile systems and help Northrop benefit from the US plans for a national missile defence "shield".

"It's a terrific fit," said Cai von Rumohr, an analyst at SG Cowen. "It rounds out their portfolio and clearly cements them as a real heavyweight player."

Analysts also predicted that other industry players, including General Dynamics and United Technologies, could be tempted to make a counterbid.

Shares in TRW closed up $10.50 at $50.30 last night, above the $47 offer price. Northrop, which would also assume almost $5bn in debt if its bid succeeds, saw its shares fall 8 per cent to $109.95.

Northrop's president, Ronald Sugar, who many expect will succeed Mr Kresa, is also a TRW veteran who headed its aerospace and defence until 2000.

The offer, detailed in an open letter to TRW's board, came just two days after its chief executive resigned to take the helm at Honeywell International. TRW's shares fell more than 10 per cent following the departure of Mr Cote, who is credited with instigating a dramatic restructuring at the company. A Honeywell spokesman said Mr Cote's move had "no connection" to Northrop's planned bid for TRW.

Analysts described the move by Northrop, which just last week was citing its takeover experience as a "core" capacity, as aggressive and opportunistic.

In the past year it has spent almost $8bn buying two warship builders, Litton Industries and Newport News Shipbuilding, doubled its sales in the process and helping the one-time aircraft specialist refocus as a diversified defence group.