Guy Norris/LOS ANGELES
Northrop Grumman is to take over California-based defence electronics and information systems giant Litton Industries in a deal worth over $5.1 billion.
The combined company will have projected revenues of $15 billion this year, growing to around $18 billion by 2003, says Northrop Grumman chairman and president, Kent Kresa. He does not expect the deal to fall foul of US antitrust laws unlike the company's aborted merger with Lock-heed Martin. "The difference is that we are acquiring as opposed to being acquired. Secondly, we feel there is virtually no overlap, which was a great concern with Lockheed Martin. So we don't think that will be a problem.
"It is a way of enhancing the overall capabilities of the company in a direction we have already chosen," says Kresa, who expects the acquisition of Litton's strong US Navy shipbuilding side to provide fertile ground for Northrop Grumman's recent focus on developing its platform capability.
The result, assuming the deal is approved, will be a diverse company with strong aerospace and defence electronics interests, ship systems, information systems and electronic components and materials. One of the only significant overlap areas, that of electronic warfare, is not expected to be a major hurdle given the US Government's recent approval of the BAE Systems - Lockheed Martin Sanders deal. The move also signals a reverse of Northrop Grumman's earlier strategy to seek buyers for some of its aerospace and defence electronics businesses. "It enhances our capabilities tremendously and on ship platforms we will be prime," Kresa adds.
The combined company expects to see initial cost savings of around $100 million, rising to $250 million in the next few years following the completion of the merger in the first quarter of this year. Kresa says the projected savings with Litton represent a "very conservative number".
Northrop Grumman is expected to achieve sales of $7.6 billion in 2000, with Litton's revenues for the year estimated at $5.58 billion.
The takeover agreement has been six months in the making. The acquisition is an all-cash deal and the company plans to raise additional capital through a stock offering once the transaction is closed. Shareholders of Litton - which, unlike Northrop Grumman, has become relatively unpopular on Wall Street - stand to benefit from the deal. The company has recently been criticised for delays in building the first San Antonio LPD 17 Class amphibious assault ships and, other than its acquisition of Avondale, it has been unable to match the corporate growth of the majority of its defence industry rivals.
Litton's products include a wide range of inertial navigation systems; electronic warfare and IFF systems; lasers; night vision equipment; ruggedised computers and displays; digital battlefield systems; missile and air defence systems; tactical and coastal defence, strategic command, control and communications systems; information technology infrastructure engineering; software development; shipbuilding and a broad range of electronic component and materials manufacturing.
Source: Flight International
