As angry shareholders launched a lawsuit against Northrop Grumman executives in the wake of the failed merger with Lockheed Martin, speculation is growing that the group is preparing to bid for the defence arm of GTE if it comes on the market as part of the US telecommunications giant's own merger plans.
The legal action alleges that Northrop Grumman directors profited from the surge in the group's stock price which followed last year's announcement of the Lockheed Martin agreement, despite the fact that they knew from the outset that top-level US Department of Defense officials were "fundamentally opposed" to the deal.
The lawsuit alleges that "six Northrop insiders" profited by selling $10 million-worth of stock earlier this year as the share price scaled new heights, only to sink again last month when the merger was abandoned.
Directors are also accused of encouraging shareholders at a meeting on 26 February to vote for the merger without telling them of the Government's opposition until two weeks later. The vote also gave top executives stock rights worth some $150-160 million, exercisable even if the deal fell apart.
Northrop Grumman ultimately had to take a charge of $180 million for costs associated with the proposed merger, most of which covered the stock awards made to company executives and managers.
Meanwhile, speculation is mounting that Northrop Grumman is seeking to build up its portfolio by acquiring the defence electronics operations of GTE, which is attempting to push through a telecommunications merger with Bell Atlantic. Counter offers, however, could come from GEC-Marconi, General Dynamics and Lockheed Martin.
Northrop Grumman chairman Kent Kresa has outlined plans for growth, saying that target acquisitions include "defence electronics, information technology and commercial aerostructures".
Source: Flight International
