DOGFIGHT FOR GRUMMAN : Northrop’s Kresa Defies Caution in Hostile Bid
The moral of this story may be: Don’t get Kent Kresa mad.
Kresa, the 55-year-old chairman and chief executive of Northrop Corp., is a studious-looking fellow who has cleaned up the Los Angeles-based aerospace giant’s tarnished reputation and is generally regarded as bright, methodical and conservative.
But on Thursday, Kresa defied expectations by making an unsolicited $60-a-share bid for Grumman Corp., which--spurning an earlier, lesser offer from Northrop--had signed a $55-a-share deal Monday with Martin Marietta Corp.
“Kresa is a very cautious guy, and I think this startled a lot of people,” said one Northrop watcher who asked not to be identified.
Indeed, Wall Street analysts had widely predicted that Northrop and Kresa were not the type to take the risks inherent in a hostile takeover attempt.
But Kresa may not have had a choice.
Twice before, merger attempts by Century City-based Northrop had been stymied. In the current “acquire or die” environment created by military budget cuts, analysts said, another failure would only weaken Northrop’s chances of maintaining its independence. But standing pat would leave Northrop vulnerable to a takeover itself.
Rather than wallow in that limbo, Kresa struck an uncharacteristically testy tone in the letter he sent Thursday to Grumman Chairman Renso L. Caporali complaining of ill treatment at the Long Island, N.Y., jet builder’s hands. Grumman and Northrop had been in merger discussions for more than a year before Grumman rebuffed an offer of at least $50 a share last month.
“We had been working to achieve a mutually acceptable business combination which corresponded as closely as possible to what we understood to be our shared strategic vision,” Kresa wrote. “Now it appears from the tender-offer documents that we were not playing on a ‘level playing field.’ ” Northrop, he complained, never knew that Grumman was also in talks with Martin Marietta.
Answering questions Thursday from reporters and financial analysts, Kresa stressed that Northrop is going after Grumman because of the perfect strategic fit of the two companies. In the past, he has stressed that he would not overpay for an acquisition.
“We haven’t sought to acquire something just to get bigger or because others were buying,” Kresa said. Instead, Northrop is looking to strengthen its military and commercial aircraft operations and its defense electronics businesses, he said.
“They have recognized the need to consolidate,” said John Harbison, head of the aerospace practice at Booz Allen & Hamilton. “They’ve been actively involved in pursuing transactions. . . . They just haven’t won anything.”
Northrop recently has failed in attempts to buy IBM’s Federal Systems division and General Dynamics’ F-16 fighter jet line.
Harbison gives Kresa high marks for cleaning up Northrop’s image, battered in defense department scandals, and for improving the firm’s financial performance. “I think he’s made some significant strides and the company has improved,” Harbison said.
Kresa has faced challenges before. Perhaps the greatest came four years ago, when he was selected to fill the shoes of controversial Northrop Chairman Thomas V. Jones. Jones’ 27-year reign was highlighted by prosperity and risk taking but marred by allegations of fraud and bribery.
An engineer by training, Kresa has spent his entire 35-year career in aerospace and defense. He joined Northrop in 1975 as vice president and manager of the company’s research and technology center and worked his way up. He now holds the jobs of president, chief executive and chairman.
Profile: Kent Kresa
* Born: March 24, 1938, in New York City
* Residence: Los Angeles
* Education: Graduate degrees in engineering, aeronautics and astronautics from the Massachusetts Institute of Technology
* Career highlights: Chief executive and president of Northrop Corp. Held titles of chief operating officer in 1987, general manager in 1976 and vice president of research and technology in 1975. Before joining Northrop, was a deputy director of the Defense Advanced Research Projects Agency in Washington. External activities include member of the board of the John Tracy Clinic and member of the Chief of Naval Operations executive panel in Washington.
* Family: Married; one child
Maneuvering for Position
Northrop’s $60-a-share tender offer for Grumman beats the $55 offered by Martin Marietta, but it is far from the end of the story. Martin could come back with a higher bid, other companies could enter the fray and Grumman could end up officially auctioning itself. Corporate directors in such situations have an obligation to do what is best for the shareholders, which usually means taking the highest bid. But the question of what is best is subjective, which is why these fights often end up in court.
BIGGEST DEFENSE CONTRACTORS
defense contracts Rank Company (in billions) 1. Martin Marietta/GE* $6.4 2. McDonnell Douglas 5.3 3. Northrop 4.9 4. Lockheed 4.7 5. General Dynamics 4.5 6. General Motors 3.7 7. Ratheon Co. 2.8 8. United Technologies 2.8 9. Boeing 2.5 10. Litton Industries 2.3 11. Grumman 2.2
* Includes the amount of General Electric Co.'s prime defense contract, which Martin Marrieta acquired in November, 1992.
THE COMPANIES AT A GLANCE Martin Marietta Corp. * Headquarters: Bethesda, Maryland * Chief Executive: Norman R. Augustine * Employees: 93,000 * Major products: Space launch vehicles, spacecraft, missiles, launching systems and avionics. * 1993 revenue: 9.4 billion * 1993 profit: 20.9 million * Earnings per share: $4.25 * Thursday stock price: Closed at $46.50, up 50 cents *Northrop Corp. * Headquarters: Los Angeles * Chief executive: Kent Kresa * Employees: 30,000 * Major products: Military aircraft, defense electronics, missiles, electronic countermeasures equipment and navigation systems. * 1993 revenue: 5.1 billion * 1993 profit: 96.0 million * Earnings per share: $1.99 * Thursday stock price: Closed at $41.25, up 62.5 cents *Grumann Corp. * Headquarters: Bethpage, New York * Chief Executive: Renso L. Caporali * Employees: 18,000 * Major products: Military aircraft, computerized test equipment and data processing, financing, real estate and insurance services. * 1993 revenue: 3.2 billion * 1993 profit: 58.8 million * Earnings per share: $3.50 * Thursday stock price: Closed at $61.75, up $6.75 Sources: Gary J. Reich, Prudential Securities Inc.; Dept. of Defense, Researched by ADAM S. BAUMAN / Los Angeles Times