Northrop to Move on TRW in Hostile Bid
Northrop Grumman Corp. said Sunday it is launching a hostile bid to acquire TRW Inc. for $5.9 billion, after TRW’s board earlier in the day rejected an unsolicited offer made 10 days ago.
Northrop said it will take its bid directly to the shareholders by filing a tender offer for TRW with the Securities and Exchange Commission on Monday. Northrop has been preparing for such a hostile bid, anticipating a rejection by Cleveland-based TRW.
Northrop, a Los Angeles-based defense contractor that has grown to become an industry powerhouse, proposed a deal with TRW directors Feb. 21, just three days after TRW’s chief executive abruptly resigned to take a top post at another aerospace firm.
But TRW directors criticized the timing of the proposal and last Wednesday asked for more time to consider it. Northrop had requested a response by that date. TRW, a manufacturer of automotive parts and defense satellites and electronics, has been one of the last in the aerospace industry to avoid consolidation.
In its tender, Northrop’s offer will remain the same as its initial bid--$47 in Northrop shares for each TRW share--but it will cap the exchange ratio. The mechanics of that cap would mean that the exchange ratio could not go above 0.45, equal to $103, Northrop shares for each TRW share or below 0.41, equal to $113. On Friday, Northrop shares gained 71 cents to close at $107.75 and TRW shares closed down 20 cents to $50.05, both on the New York Stock Exchange.
In a statement, Northrop Chairman Kent Kresa said the company was turning to the shareholders because “we have not received a substantive response from TRW regarding our Feb. 21 letter....
“Accordingly, we are moving ahead to make this offer available to TRW shareholders and to initiate all the steps that are necessary to see it through to conclusion,” Kresa said.
Kresa added that Northrop will request that TRW directors call a special meeting of shareholders required under Ohio law. Moreover, he said the company plans to file a lawsuit in Ohio challenging elements of the state’s anti-takeover laws.
Ohio has some of the toughest anti-takeover laws in the nation. It bars shareholders from ousting a staggered board without cause even though hostile bids still have managed to succeed. Analysts have said that the law merely provides more leverage to Ohio-based companies.
Northrop, if it succeeds in acquiring TRW, plans to immediately spin off or sell the company’s automotive business, which accounts for 60% of sales and a large amount of its debt.
Northrop is particularly interested in TRW’s space and defense electronics business, considered one of the premier operations in the industry.
Kresa also seemed to extend an olive branch at the same time. Kresa said Northrop “remains willing to entertain negotiations with TRW regarding a transaction and would welcome the opportunity to consider nonpublic information about TRW in order to consider any enhanced values that might be demonstrated by such information.”
In anticipation of a less-than-warm reception from TRW, Northrop early last week retained D.F. King & Co. a New York firm that specializes in proxy solicitations. For its part, TRW hired proxy firm Georgeson Shareholder Communications Inc.
