Northrop Bids $2.1 Billion for Newport News
Northrop Grumman Corp., in an audacious move to undercut General Dynamics Corp.’s bid to become the nation’s largest military shipbuilder, launched a rival unsolicited offer Tuesday to acquire Newport News Shipbuilding Inc.
Sparking what is expected to be an intense fight with its old archrival, Century City-based Northrop made a formal $2.1-billion offer for the Newport News, Va., ship maker.
“We have received a letter summarizing the offer,” said Jerri Fuller Dickseski, a Newport News spokeswoman. “But at this point, we’re not going to say anything other than to confirm that we have received the offer.”
Northrop is offering $67.50 per share for the nation’s sole builder of nuclear-powered aircraft carriers, the same price offered by General Dynamics less than two weeks ago.
But whereas General Dynamics has offered cash, Northrop is proposing a package of 75% stock and 25% cash in an effort to sway Newport News shareholders.
The offer drew an immediate response from General Dynamics, which accused Northrop of interfering with its proposed merger and trying to unfairly dominate several key shipbuilding businesses.
“We’re disappointed that Northrop Grumman has chosen to interfere in a proposed transaction agreed upon by the respective boards of directors of General Dynamics and Newport News Shipbuilding,” the Falls Church, Va.-based company said in a statement.
“Northrop Grumman became the dominant player in surface warfare shipbuilding markets through its recent acquisition of Litton. It now seeks to become the dominant player in nuclear shipbuilding as well.”
The fight over Newport News caps a wave of consolidations that has left the military shipbuilding industry with three major players--Northrop, through its recent acquisition of Litton Industries Inc., General Dynamics and Newport News.
“You look at the shipbuilding landscape and you’ve got only three companies left,” said Jon B. Kutler, president of Quarterdeck Investment Partners, a defense industry investment bank. “There is only one girl left at the dance and both desperately would like to be the dominant player.”
Indeed, if General Dynamics prevails, the combination would create the only U.S. builder of aircraft carriers and submarines for the U.S. Navy, placing nuclear shipbuilding under one roof.
On the other hand, a Northrop purchase of Newport News would keep the country’s two main nuclear shipyards separate, and give Northrop a strong position in the market for nuclear and nonnuclear surface ships.
In an interview, Northrop Chairman Kent Kresa said one reason the company was making the rival bid was to prevent the General Dynamics combination, which would leave Northrop at a competitive disadvantage, particularly in receiving research and development funds.
“We felt that it was in our interest to make the offer because of the amount of research and development that would be put into the nuclear programs,” he said.
Northrop’s bid comes less than a month after it completed the $3.8-billion acquisition of Litton Industries, a Woodland Hills-based defense contractor that also is the nation’s second-largest naval shipbuilder.
With Newport News, which also builds nuclear submarines at its complex in Virginia, Northrop would overtake General Dynamics as the largest military shipbuilder and leave two naval contractors in the U.S.
The bidding war comes almost to the day two years ago when Litton launched a bid for Newport News after it had been courted by General Dynamics. Both bids were dropped after the Pentagon objected, citing competitive concerns.
This time, Northrop and General Dynamics argued that their deals would get a more sympathetic review from the Bush administration than under President Clinton.
The fight over Newport News promises to be intense. Kresa and General Dynamics Chief Executive Nicolas D. Chabraja have built reputations of making aggressive but prudent acquisitions.
On the New York Stock Exchange, Northrop shares fell 55 cents to close at $91.50, General Dynamics rose 30 cents to close at $78.30, and Newport News dipped 1 cent to $65.
