Newport News Shipbuilding Inc. directors have voted to reaffirm a $2.1-billion merger pact with General Dynamics Corp., but declined to preclude Northrop Grumman Corp.'s rival bid, leaving the door open for Northrop to continue its counter offer.
Newport News said Wednesday that its board believes the General Dynamics offer of $67.50 a share in cash was a "better and more certain value" than Northrop's rival bid, but that it could not take a position on Northrop's proposal until antitrust reviews were completed.
Century City-based Northrop made an unsolicited bid for Newport News last month after the Virginia shipbuilder already had agreed to be acquired by Falls Church, Va.-based General Dynamics, one of the nation's largest defense contractors. Northrop offered an equivalent amount but in cash and stocks. Both would assume about $500 million in Newport News debt.
The board "determined that it is unable to take a position with respect to the Northrop Grumman offer until it has obtained additional information regarding the position of the Department of Defense and the Department of Justice," the company said in a statement.
With the latest decision, analysts said the ultimate fate of both bids probably will rest with the government, which could block one or both offers for antitrust reasons. The Defense Department blocked similar deals two years ago citing antitrust concerns. General Dynamics, Newport News and Northrop, through its acquisition of Litton Industries Inc., are the only military shipbuilders left in the U.S.
"The reality is if General Dynamics doesn't get the government approvals, it's not going to close [the deal] so you have to consider the other offer," said Jon B. Kutler, president of Quarterdeck Investment Partners Inc., an aerospace/defense investment bank. "These are deals that are really up to the government."
A Northrop spokesman said Wednesday that company representatives were meeting with Justice Department and Pentagon officials to discuss its offer, as were General Dynamics officials in separate meetings.
A General Dynamics spokeswoman said it was telling government officials that the combination would create considerable savings for the Navy. Meanwhile, Northrop officials argued that the General Dynamics deal would be anti-competitive since it would create the nation's sole provider of nuclear aircraft carriers and submarines.
Pentagon officials said Wednesday that they were carrying out an exhaustive review of both bids and probably would make a recommendation within weeks.
"We have an intensive review going on with both companies, trying to understand not only the near-term implications but the long-term implications" for preserving competition among warship builders, Edward "Pete" Aldridge, undersecretary of defense for acquisitions, told Reuters. "We'll make a decision and a recommendation . . . when appropriate, probably in several more weeks," he said.