Northrop Shares Fall on Lockheed Pullout
Northrop Grumman Corp. shares fell 6.9% on Friday, a day after Lockheed Martin Corp. scrapped its planned $10.7-billion purchase of Northrop rather than face a legal battle with federal antitrust enforcers and the Defense Department, its biggest customer.
Shares of Northrop, the nation’s fourth-largest defense contractor, fell $6.75 to $90.63 in heavy trading on the New York Stock Exchange. The closing price was close to Northrop’s price of $88.88 on July 2, 1997, the day before Lockheed said it had agreed to buy Northrop.
Lockheed shares rose $1.50 to close at $105.44, also on the NYSE.
The 35% decline in Northrop’s share price since February has investors calling for quick action to boost it. During a conference call, they asked Chairman Kent Kresa to either make acquisitions or sell parts of the company.
“If we were to take a vote on this call whether or not to split this thing apart, I think we would have a unanimous decision,” said Douglas Scott of Institutional Capital Corp. of Chicago.
Instead of being acquired by Lockheed, the second-largest aerospace company, with revenue of $28 billion, Northrop will have to compete on its own.
Northrop, which also makes commercial aircraft bodies and electronic systems for the military, had $9.15 billion in sales last year. Boeing Co. is the world’s largest aerospace and defense company.
“Northrop Grumman will be virtually crippled and hardly capable of competing toe-to-toe with Raytheon on the electronics side, let alone with Boeing or Lockheed Martin on the aircraft platform,” said James McAleese of McAleese & Associates, a defense and aerospace law firm in McLean, Va.
Kresa said he is confident in Northrop’s future as a stand-alone company.
“We not only intend to survive, we expect to thrive,” Kresa said in the conference call. “We’re not for sale and weren’t for sale when Lockheed came to us.”
Lockheed Martin’s board voted to walk away from the deal that would have created the world’s largest defense contractor, instead of taking its chances in a court battle set to begin Sept. 8.
Kresa said he was surprised by Lockheed’s move.
“We were aggressively moving forward to go to court,” he said. “For some reason, [Lockheed] made a decision to change.”
Analysts said Northrop has several options, including making acquisitions or selling parts of its business.
