Northrop wins bidding for Grumman

Electronic News, April 11, 1994 by Walter Andrews

NEW YORK--Northrop Corp. last week emerged as the winner to purchase all of Grumman Corp. after would-be acqulrer Martin Marietta failed to put up any meaningful struggle to contest Northrop's higher offer. Grumman and Martin had disclosed a deal for the purchase early last month after Grumman broke off private talks with Northrop, but Northrop immediately came back with a plan to make a renewed public bid (EN, March 14).

In a conference call with security analysts following the announcement that Northrop bad trumped Martin's March 7 cash offer of $1.9 billion, or $55 a share, with its winning S2.17 billion, or $62 a share bid, Northrop chairman and CEO Kent Kresa said consideration would be given to divesting those pieces of Grumman that do not fit in with the strategy of the combined corporation. "It's too early for me to say what those pieces are. But I would not preclude that as a direction to go," Dr. Kresa said.

Nevertheless, his remark led to speculation as to what, if anything, loser Martin might do to acquire a combined NorthropGrumman company or parts of it. Paul Nisbet, an analyst with JSA Research, Newport, R.I., suggested there is still a possibility that Martin might team with another company such as Lockheed (which he said has $1.3 billion available for acquisitions) and try to take over the merged Northrop-Grumman.

If done at all, Martin's attempt would be done relatively soon, Mr. Nisbet said, to give the company the advantage of responding to Northrop's hostile action. However, a Martin executive, who spoke on condition of anonymity, said that such an attempt was unlikely given the policy of Martin chairman Norman Augustine against hostile takeovers. If Northrop-Grumman, however, decided to divest parts of the company, such as Grumman's Information Systems group, Martin might bid on that, he said.

Meanwhile, in an April 4 statement, Grumman said its board of directors had recommended shareholders accept the Northrop tender offer. Under New York state law, two-thirds of Grumman shareholders must approve.

In a separate statement, Martin said it was withdrawing from the competition and would allow its $1.9 billion March 7 offer to expire midnight April 4. Grumman bad given interested parties until March 31 to make their best and final offers (EN, April 4), but Martin never budged from its original agreemere.

Earlier in the day, Grumman said it paid Martin the $50 million fee the two companies agreed would be due if their pact was cancelled (EN, March 28). Negotiations also are underway for payment of up to $8.8 million in expenses incurred by Martin in its merger attempt.

Dr. Kresa earlier had called such a payment illegal, but in his conference call with analysts he said: "We don't see that there's any interest for our shareholders to do any litigation at this time."

He also said there was some overlap between the tw'o merged companies and major savings were possible, indicating there might be some layoffs. ttowever, a Northrop spokesman said: "We haven't gotten that far yet."

Dr. Kresa said: "There is no question that there are major savings that can be accrued to the new company. Because we fit so well, there are obviously overlapping pieces and that needs to be rationalized rapidly and we will do it. But I do not have a particular nulnber."

In his March 7 news conference with Martin, Grumman chairman Renso Caporali said Grumman--the Navy's long-time, premier supplier of combat aircraft--had no plans to bid on new military aircraft programs.

Dr. Kresa indicated the Northrop-Grumman company planned to pursue military aircraft programs. The merger offered "very positive things in terms of being able to preserve the best of our design capability for all kinds of aircraft, particularly all kinds of Air Force and Navy combat aircraft and also surveillance aircraft," he said. "We see ourselves as being able to provide and become the premier capability in reconnaissance and strike with our bomber work and Grumman's surveillance aircraft, with the jammer work that we do and the standoff weaponry that we do, both our capabilities in systems integration."

Northrop currently has a healthy cash flow from production of the Air Force's B-2 Stealth bomber. Dr. Kresa said the new company will be able to drop its debt-to-capital ratio to less than 60 percent by year's end. "I think our cash flow will be able to bring our debt down rather rapidly," he said.

No mention was made of what role, if any, Dr. Caperall would play in the new company. A Northrop spokesman said he could not respond to that question.

Dr. Kresa said consideration would be given to establishing the headquarters of the electronics component of the business on Long Island.

Dr. Kresa declined to be specific about the writing off of charges related to the merger of Northrop and Grumman. "There are obviously some charges and some changes that w'c have to do on the balance sheet because things are slightly different in the two companies," he said.

The combined Northrop-Grummau would have annual sales of more than $8 billion, a business backlog in excess of $13 billion, and more than 40,000 employees.