Lockheed Aims to Kill TRW Deal
Lockheed Martin Corp., the nation’s largest defense contractor, has begun to lobby Pentagon and Justice Department officials to kill the proposed merger of Northrop Grumman Corp. and TRW Inc., arguing that it would be anti- competitive.
In an unexpected twist to Northrop’s hostile $6.7-billion bid for TRW, Lockheed executives have suggested that the deal could turn their company into a two-bit player in the lucrative military satellite market. Boeing Co. currently leads that business, followed closely by Lockheed; TRW ranks a distant third in annual sales.
“We want it stopped,” a Lockheed executive said, asking not to be named.
Meanwhile, a Lockheed source said the company had no interest in making a rival bid for TRW and had not signed a confidentiality agreement with TRW to gain access to its financial records.
TRW’s stock has been trading above Northrop’s offer of $53 a share on speculation that Lockheed would enter its own bid; TRW closed Friday at $54.50, down 33 cents for the day, on the New York Stock Exchange.
TRW said Friday that it had signed confidentiality agreements with several “interested parties” but did not identify them. Representatives of both TRW and Lockheed declined to comment.
Sources close to the situation said Honeywell International Inc. has been reviewing the possibility of acquiring TRW’s aircraft parts business, one of three major operating units the company plans to spin off.
In rebuffing Northrop’s offer, TRW directors have said they want to break up the company, disposing of its aeronautical systems and automotive parts businesses. The company would then focus on its core defense and space operations.
Lockheed’s antitrust complaints could add another obstacle to Northrop’s bid. Facing resistance from TRW directors, Century City-based Northrop has been appealing directly to TRW shareholders, hoping to persuade them to accept a sweetened offer of $53 a share.
Lockheed’s $5.6 billion in annual military space revenue ranks it second in the industry behind Boeing, at $8 billion. TRW ranks third, with about $2 billion. (The revenue figures may not include all classified programs.)
Unlike Boeing and TRW, which make spacecraft and components, Lockheed is a system integrator. It relies heavily on suppliers such as TRW and Northrop for communication and sensor systems that go into satellites.
If Northrop acquired TRW’s space business, headquartered in Redondo Beach, it would become both a prime contractor and a supplier and thus would be reluctant to pass along key technology to competitors, Lockheed has argued.
“It would diminish our role,” the Lockheed executive said. “We wouldn’t be competitive anymore.”
Northrop executives dismiss suggestions that acquiring TRW would dramatically change the landscape in the military satellite industry, arguing that the combination would enhance competition by strengthening TRW’s position.
“If anything, I would argue that our acquisition of TRW would actually provide three space houses with more equal footing,” said Al Myers, Northrop’s treasurer and chief of mergers and acquisitions. “Northrop’s expertise in weapons systems would complement TRW’s capabilities and would place it on a more competitive posture with the two big players.”
Antitrust officials initially underplayed Lockheed’s concerns, but in recent weeks an intense debate has broken out within the agencies over the merits of its arguments, sources said.
The Justice Department last week expanded its probe by making a second request for information from Northrop and its competitors.
“It wasn’t [serious] when they started, but it may be now,” a source close to the debate said. “This is a survival question for Lockheed.”
A Lockheed spokesman declined to comment. But in an interview Thursday before the company’s annual meeting in San Diego, Chairman Vance Coffman said the company has been responding to requests for information.
“We shared those thoughts with the Pentagon,” he said. “We are fully capable of understanding what this combination of TRW and Northrop Grumman would bring to the table.”
A Pentagon spokesman said the department was reviewing the possible merger and added that “during the course of these types of review we reach out to those who may have information for us.” He declined to comment further.
If Lockheed were successful in scuttling the TRW-Northrop deal, it would represent another twist to the defense industry’s consolidation wave.
Last year, Northrop won a bid to acquire Newport News Shipbuilding Inc., becoming the world’s largest military shipbuilder after it successfully protested a rival’s bid on antitrust concerns. The rival, General Dynamics, dropped its proposal to merge with Newport News after the Pentagon and the Justice Department agreed with Northrop that such a combination would create a monopoly in nuclear shipbuilding.
In 1998, Northrop’s quest to merge with Lockheed was killed after Pentagon and Justice Department officials agreed with Raytheon Co. and other companies that the deal would stifle innovation.
