Avondale Says It Will Take Litton’s Higher Bid
Avondale Industries Inc. said Tuesday that it is prepared to accept an increased cash takeover bid from Woodland Hills-based Litton Industries Inc., forgoing a previous all-stock merger agreement with Newport News Shipbuilding Inc.
Avondale accepted Litton’s latest offer of $39.50 a share, which Litton raised from the $38 it offered on May 6 as part of a dual $2.4-billion bid for both Avondale and Newport News. The Pentagon last week rejected Litton’s proposal to buy Newport News but allowed the Avondale purchase to proceed.
Adding Avondale, La.-based Avondale, which specializes in military auxiliary and amphibious craft, would strengthen defense and electronic giant Litton’s position as the Navy’s No. 3 shipbuilder. Litton’s Ingalls division makes destroyers and other surface ships. General Dynamics Corp. is No. 1, and Newport News, Va.-based Newport News is No. 2. Those three companies will compete for the $6.7 billion that Congress proposes to spend on the U.S. Navy fleet in the next six years.
Litton’s purchase would give it “a stronger voice of power with the Defense Department, Congress and within the shipbuilding industry,” said Keith Patriquin, an analyst with Loomis Sayles & Co.
Newport News might try to beat Litton’s Avondale offer, one Litton shareholder told Bloomberg News.
The Pentagon’s rejection of the Litton-Newport News merger left Newport News with neither a buyer for itself nor its acquisition of Avondale, which would have made it capable of building every ship the Navy purchases. Newport News, which makes nuclear-powered aircraft carriers and submarines for the Navy, offered to buy Avondale for about $470 million in stock.
Newport News declined to comment.
“I wouldn’t be surprised if [Newport News] sweetens their bid for Avondale,” said David Baker, an investor with Charles Schwab Investment Management Inc. “But the clock is ticking, and they are running out of time.”
In New York Stock Exchange trading, Newport News shares rose 56 cents to close at $28.06, and Litton shares rose 19 cents to close at $65.38. Avondale rose $1.66 to close at $38.16 on Nasdaq.
Newport News offered to buy Avondale for $519 million in stock and assumed debt earlier this year, valuing Avondale at about $35.50 a share. Under the terms of its previous merger pact with Newport News, Avondale has given 48 hours’ written notice to Newport News that it is prepared to accept Litton’s offer.
