GRAHAM WARWICK / WASHINGTON DC
Northrop Grumman could add cash to $6bn all-stock offer
Northrop Grumman was expected to launch a hostile bid for TRW after the aerospace and automotive company did not respond to its unsolicited takeover offer by the 27 February deadline. The US aerospace giant could also improve its proposal by including cash in the $6 billion all-stock offer.
If the takeover succeeds, Northrop Grumman would become the second-largest US defence contractor, ahead of Boeing and just behind Lockheed Martin, with projected revenues in 2003 of $26-27 billion. The acquisition would "make Northrop Grumman a stronger competitor to Boeing, Lockheed Martin and Raytheon", particularly in missile defence, says chairman and chief executive Kent Kresa.
Acquiring TRW would add a satellite prime-contractor capability to the company's aircraft and ship platform businesses. "Space will be of growing importance to defence and we would like a better footprint," he says. The acquisition would also give Northrop Grumman the key role it lacks in the USA's multi-billion-dollar missile defence programme, for which TRW is developing systems ranging from surveillance satellites to laser weapons.
Kresa says the acquisition would also boost Northrop Grumman's defence electronics business, complement its information technology business and add a communications capability. TRW is developing the integrated communication/navigation/identification systems for both the Lockheed Martin/Boeing F-22 and Boeing/Sikorsky RAH-66.
TRW has been burdened by debt since its $9 billion takeover of US/UK automotive company LucasVarity in 1996. Although cut by around $1 billion last year, debt still stands at $5.5 billion and debt to equity ratio at 70%. Analysts are concerned a deal will add that debt to Northrop Grumman's, which has risen to $5 billion following last year's combined $7.7 billion acquisitions of Litton Industries and Newport News. Kresa has vowed to bring the debt to equity ratio below 40% by year-end.
Although TRW had sales of $16.4 billion last year, the $6 billion offer reflects the company's depressed stock price, further hit by the departure in February of new chief executive David Cote to head Honeywell. The recession-hit automotive business, which accounted for $10.1 billion of the company's 2001 sales, would be sold or spun off with some of TRW's debt as soon as a deal is done, says Kresa.
Source: Flight International
