TRW Holds Out an Olive Branch
Shareholders of TRW Inc. rejected a proposal that would have enabled Northrop Grumman Corp. to buy a large stake in their company, but a top TRW executive suggested that a deal still could be struck.
In the first conciliatory gesture since Century City-based Northrop launched its hostile $6.7-billion bid in late February, TRW Chairman Philip A. Odeen said representatives of the companies met Thursday night and that a friendly pact is still possible.
“The meeting was very constructive regarding the confidentiality agreement,” Odeen said in an interview shortly after a special meeting at the company’s Cleveland headquarters.
“The discussions are continuing and we believe we can arrive at a mutually acceptable agreement.”
The remarks came shortly after TRW shareholders appeared to reject a proposal that would have given Northrop a psychological edge in its bid. The proposal, required under Ohio law, wasn’t a direct vote on the deal but would have allowed Northrop to acquire more than 20% of TRW shares.
If passed, the referendum would have put added pressure on TRW executives to negotiate with Northrop, whose sweetened offer of $53 a share has been rebuffed as “financially inadequate.”
The results were preliminary, and the finally tally isn’t expected for several more weeks, but Odeen said the proposal was rejected “decisively.”
Northrop executives confirmed Thursday’s meeting but declined to respond to Odeen’s remarks. They said the company would decide over the weekend whether to extend its offer for TRW. The all-stock tender offer officially expired Friday. “As our exchange offer is scheduled to expire at midnight tonight, we will review our options over the weekend and issue a release Monday morning,” Northrop Chairman Kent Kresa said in a statement Friday.
It was unclear what Northrop would decide, but sources close to the company said there has been intense debate in the last week about dropping the bid, apparently fueled by frustration that TRW has been able to prevent Northrop from looking at the company’s financial details.
Kresa has maintained that if Northrop could look at TRW’s books, he could raise the offer depending on “hidden values” discovered during due diligence.
But TRW has insisted that Northrop sign a so-called standstill agreement, which would preclude Northrop from making another bid for three years if talks collapsed. Northrop has proposed a 75-day standstill. Neither side seemed to budge until Friday, when Odeen said TRW was willing to negotiate the terms of the standstill provision.
Some Northrop executives are leery of TRW’s publicly stated willingness to give Northrop access to the books, sources said.
James McAleese, a defense industry lawyer who is advising Northrop, said the company may be running out of patience.
“This is the straw that broke the camel’s back,” McAleese said of the shareholder vote. “The ball now belongs in Northrop’s court. They can walk or talk.”
Some analysts speculated Friday that Odeen was extending an olive branch to Northrop because TRW doesn’t appear to have a rival bidder, although several companies apparently are interested in acquiring its aircraft parts business, one of three major operating units.
In response to Northrop’s bid, TRW said it was accelerating its own breakup plan that includes selling the aeronautical parts business, spinning off its automotive parts unit and then focusing on its defense and space electronics operations.
Northrop, the nation’s third-largest defense contractor, wants TRW’s defense business, headquartered in Redondo Beach, and had proposed a similar breakup plan if it was successful with the bid.
“If they had one [a rival bidder], something would have happened already,” said Jon B. Kutler, president of Los Angeles-based Quarterdeck Investment Partners Inc., a defense investment bank.
As such, Kutler said, the shareholder vote was more of a “psychological” setback than a substantive one for Northrop. “It really doesn’t preclude Northrop from still pursuing the company. It just presents a different road map for Northrop.”
The stock market appeared to react with similar disinterest. In a day of declines across the board, TRW shares fell 80 cents to $55 after climbing to a 52-week high earlier in the day, while Northrop shares dipped $1.02 to $122.38 after reaching its 52-week high a day earlier. Both trade on the New York Stock Exchange.
