Newport News to Weigh Rival Merger Bids Again

Newport News Shipbuilding Inc. said its board will meet today to look again at rival merger bids from General Dynamics Corp. and Northrop Grumman Corp. in light of the recent jump in Northrop’s share price.

The announcement followed indications the Pentagon would urge the Justice Department to let both bids move forward--leaving the choice to Newport News shareholders--rather than blocking either or both on antitrust or national security grounds.

The board, which has backed General Dynamics’ $2.1-billion proposal, “will review the offers in light of the increase in the Northrop Grumman stock price,” said Jerri Dickseski, a spokeswoman for the maker of nuclear-fueled aircraft carriers and submarines.

Newport News anticipated making another announcement late this afternoon, she said.

Northrop’s unsolicited May 8 bid was designed to match the $67.50 offered by General Dynamics on April 25. But unlike General Dynamics’ all-cash offer, Northrop’s was made up 75% of its own shares and 25% cash--a package lately valued at about $73 a share.

At the time, Northrop was trading for about $88 a share. On Thursday, it closed at $106, down $1.52, on the New York Stock Exchange.

Northrop said Thursday that it had again extended its offer for Newport News shares, by one week to Oct. 11. Newport News shareholders have tendered most of their shares in response to the offer from Falls Church, Va.-based General Dynamics of $2.1 billion in cash, plus $500 million in assumed debt.

Cheryl Irwin, a Pentagon spokeswoman, said the Defense Department will relay its recommendation to the Justice Department probably next week.

The Justice Department has the final say on whether the proposed mergers would violate antitrust laws by stifling competition. It is expected to heed the Pentagon, which accounts for nearly all of Newport News’ business.

If the market were left to decide which company gets the prize, a bidding war could ensue, said James McAleese of McAleese & Associates, a McLean, Va., aerospace and law firm advising Northrop.

In that case, General Dynamics might be handicapped by a tradition of buying with cash rather than diluting the ownership of long-term block holders, he said. Separately, a source familiar with General Dynamics’ strategy said the company will not get into a bidding war or overpay.

“At the end of the day, I think GD is going to run out of cash before Northrop runs out of stock,” McAleese said.

Northrop spokesman Randy Belote declined to discuss the possibility of a bidding war. “We’re not speculating on any issue relative to our bid,” he said. “Northrop Grumman is confident it will prevail as its tender offer would not create a monopoly in the manufacture of nuclear submarines.”

General Dynamics spokesman Kendall Pease also declined to discuss possible sweetening, saying, “our attention is on getting the Department of Defense’s approval” of its bid.

Northrop contends that a General Dynamics-Newport News deal would collide with President Bush’s commitment to free markets. It also has argued that it would put almost all Navy research dollars into one company, making it tough for Northrop to compete even for nonnuclear ships and boosting U.S. costs of building warships.

General Dynamics has argued that its proposed deal would not create a monopoly because there is not enough work to sustain competing shipyards with only one or two $2-billion Virginia-class nuclear submarines being built per year.

General Dynamics shares rose $1.65 to $91.48, and Newport News rose $4.25 to $72.40, both on the Big Board.