Northrop turning hostile with bid for TRW

Thomas J. Sheeran

Monday, March 4, 2002 | 9:57 a.m.

CLEVELAND -- TRW Corp., a maker of space, defense and automotive products, rejected as inadequate an unsolicited $5.9 billion takeover offer from defense giant Northrop Grumman Corp. Northrop Grumman said it would take its hostile bid for TRW directly to its rival's shareholders.

The TRW board voted unanimously to reject the offer, the company said in a statement late Sunday.

TRW stock has been trading above the offered price of $47 a share, indicating Wall Street has been expecting a higher offer. In early trading today on the New York Stock Exchange, TRW shares rose another 80 cents to $50.85.

TRW said the Northrop Grumman offer undervalues TRW's leadership positions in the space, defense, information systems and automotive parts industries.

"This is all about shareholder value and the Northrop Grumman proposal does not begin to recognize the value of TRW's franchise," said Philip A. Odeen, TRW's chairman.

Kent Kresa, chairman and chief executive of Northrop Grumman, said Sunday night that it was proceeding with its hostile bid, saying "such transaction would be in the best interests of both companies' shareholders."

On Monday, TRW advised its shareholders against acting on the tender offer. The company said it would make a recommendation by March 15.

Northrop Grumman spokesman Randy Belote would not say whether the company would raise its bid considering TRW's higher stock price.

"What we're suggesting is that at this point we have a fair and equitable offering of common stock at $47 a share," Belote said. "If you look at the history of our stock, we are trading at very high levels. We feel that this exchange offer would be very favorable to TRW shareholders."

In early trading today on the NYSE, Northrop Grumman shares were down $1.20 at $106.35.

Odeen and Kenneth A. Freeman, lead director in TRW's review of the takeover bid, informed Northrop Grumman of the decision in a letter to Kresa.

"The board views Northrop Grumman's proposal as an opportunistic attempt to acquire one of the industry's leading space and electronics and systems businesses at a time when TRW's stock price was temporarily depressed after the sudden departure of David Cote, our former chairman, president and chief executive officer," the letter said.

Cote, 49, quit Feb. 19 to become CEO of Honeywell. The bid was made three days later.

As part of its offer, Northrop said it would sell TRW's automotive parts business, which accounts for 64 percent of its sales and 58 percent of profits.

Analysts had concluded that Northrop would benefit most from TRW's satellite production unit, which makes satellites used by the military to spy on enemies and coordinate troops, ships and airplanes.

Northrop makes sensors for satellites, but is a relatively small player in the market for military products used in outer space.

Northrop said the deal would generate sales in 2003 of between $26 billion and $27 billion, putting the company slightly ahead of Lockheed Martin in terms of total sales. Lockheed is the largest U.S. defense contractor.

Under terms of the offer, Los Angeles-based Northrop would have exchanged $47 in stock for each share of Cleveland-based TRW.

The offer was an 18 percent premium over the company's closing share price of $39.80 on Feb. 21, the day the offer was outlined to TRW management.

Kresa added that Northrop Grumman will be filing a lawsuit in Ohio challenging elements of the state's anti-takeover laws.