Newport Opens Door to Northrop
Newport News Shipbuilding Inc. said Friday that it wants to begin merger talks with Northrop Grumman Corp., signaling the possibility of a bidding war between Northrop and its archrival General Dynamics Corp.
The move comes as Pentagon officials hinted they may urge the Justice Department to let both bids move forward--leaving the choice to Newport News shareholders--rather than block either or both on antitrust or national security grounds.
Until this week, Newport News had kept Northrop at arm’s length, refusing any contact by saying it already had an agreement with General Dynamics. Los Angeles-based Northrop launched a rival unsolicited offer in May hoping to undercut General Dynamics’ deal with Newport News to become the nation’s largest military shipbuilder.
But Northrop shares have surged in the aftermath of the Sept. 11 terrorist attacks, raising the potential value of Northrop’s offer by at least $200 million over General Dynamics’ bid.
In April, General Dynamics offered $67.50 a share in cash for the Virginia-based builder of aircraft carriers and nuclear submarines--valued at $2.1 billion.
Northrop countered with a combination stock-and-cash bid, which at the time had the same overall value.
But Newport News officials said Friday that Northrop’s offer was worth $2.3 billion, based on Thursday’s $106 closing price of Northrop’s common stock. Northrop shares rose $1.50 in trading Friday on the New York Stock Exchange.
“Accordingly, the board has determined to initiate discussion with Northrop Grumman concerning a possible acquisition of Newport News.” the company said in a statement.
General Dynamics officials declined to comment and refused to say whether the company would increase its bid, although some analysts said the company has the financial wherewithal to do so.
“General Dynamics could fairly readily increase its bid to that of Northrop’s,” said Paul Nisbet, an analyst with JSA Research Inc. “I would say General Dynamics is still in the driver’s seat.”
Although Newport News’ board voted to begin talking to Northrop, it also said it “reaffirms” its recommendation supporting General Dynamics’ offer “because there is no assurance that Newport News and Northrop will be able to reach a satisfactory agreement.”
Spokeswoman Norine Lyons said General Dynamics was “pleased to see that the Newport News board of directors continues to recommend the General Dynamics offer.”
“We believe a combination of our companies will provide real savings to the Navy,” Lyons said. “We also believe it offers solid, measured, enduring value to shareholders of Newport News Shipbuilding.”
Northrop Grumman spokesman Randy Belote declined to comment beyond a statement the company released saying it was pleased with the shipyard’s decision to pursue discussions about a merger.
Belote also would not say what the total value of the Northrop offer is now. “We’re not going to speculate on that. Obviously, it changes day to day.”
The Pentagon plans to send its recommendation on the Newport News acquisition to the Department of Justice next week. Both agencies must approve the transaction.
Loren Thompson, an analyst with the Lexington Institute, an Alexandria, Va.-based defense policy think tank, said both offers are likely to be approved, reversing a decision made two years ago.
Similar bids for Newport News were rejected by the Defense Department, citing antitrust concerns in 1999. Indeed, Northrop maintains that the General Dynamics deal would leave the country with only one builder of nuclear aircraft carriers and submarines. General Dynamics, meanwhile, has argued that the merger would create considerable savings for the Navy.
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Reuters and Associated Press were used in compiling this report.
