Northrop Grumman to buy Newport news shipbuilding for 1.01 times revenue

Weekly Corporate Growth Report, Nov 19, 2001

The Deal: Northrop Grumman has agreed to purchase Newport News Shipbuilding for $2.1 billion. According to terms of the deal, Northrop will also assume $500 million of Newport News debt. After news of the transaction was announced, shares of Newport News gained 70 cents to $67.75, and Northrop shares rose $1.87 to $97.95.

Discussion: Newport News Shipbuilding has been the only builder of the United States Navy's aircraft carriers. NNS is the second-largest shipbuilder in the United States; General Dynamics is number one, but those rankings will change soon. NNS builds, maintains, refuels and repairs nuclear aircraft carriers and submarines. The United States Navy accounts for 98 percent of sales. NNS has built 10 of the last 12 active aircraft carriers and will christen the USS Ronald Reagan in 2003. Bill Gates owns 8 percent of NNS, which is building the tenth CVN-77 aircraft carrier for the United States Navy for $4.1 billion.

Northrop Grumman operates in three areas: integrated systems, electronic sensors and systems sector (ES3), and information technology (Logicon). The integrated systems unit makes aircraft and their subassemblies. The ES3 segment develops and integrates electronic systems and their components for military and commercial use. Logicon develops and supports computer systems in the defense and scientific industries. Northrop is the prime contractor for the Joint STARS battlefield surveillance system, the B-2 stealth bomber and AWACS.