TRW Opening Its Books to Northrop
TRW Inc. agreed Monday to share detailed financial information with Northrop Grumman Corp., ending weeks of acrimony and moving Northrop one step closer to acquiring TRW on more friendly terms.
In the latest twist to a $6.7-billion bid that has been marked by increasing hostility, Century City-based Northrop said it had signed a confidentiality agreement that would allow it to conduct due diligence of TRW’s financial documents.
The agreement, terms of which had been a point of contention since Northrop first launched the bid in February, was signed just hours before Northrop was scheduled to announce whether it would proceed with its offer.
In seeking confidential financial documents, Northrop officials are particularly interested in internal revenue projections for TRW’s classified programs, such as spy satellites and other weapons systems that may have gotten a boost since Sept. 11. It also wants to verify cost-reduction projections and whether there are any “change of control” restrictions placed on TRW products that are often signed with key customers.
Analysts said the move by both companies to reach the last-minute compromise signaled the possibility that Northrop could boost its offer once again and that TRW may not have a rival bidder as its officials have recently implied.
“Last week, it became apparent to the rest of the world that there is no other bidder out there,” said Paul H. Nisbet, defense analyst for JSA Research Inc. “Over the weekend, TRW came to the realization that if [Northrop Chairman] Kent Kresa didn’t extend the bid there could have been quite a drop in TRW stock price.”
On the New York Stock Exchange, TRW shares rose 6 cents to $55.06, while Northrop shares fell $2.75 to $119.63 on concerns that the company would raise its bid price, making a deal potentially more expensive.
Northrop raised its offer from $47 a share to $53 a share last month as Kresa suggested that the bid could rise if the company found “hidden value” during due diligence. TRW, which also makes aircraft and automotive parts, is one of the last major defense contractors to have avoided the industry consolidation wave of the last decade. TRW directors have rejected both Northrop offers and have instead proposed breaking up the company by itself.
“We are pleased that we have reached a mutually acceptable agreement with Northrop,” TRW Chairman Philip A. Odeen said. “We are confident that each of these avenues can deliver value to TRW shareholders in excess of Northrop’s $53-per-share offer.”
Northrop officials declined to comment, but sources familiar with the deal said that Al Myers, the company’s top official for mergers and acquisitions, flew to Cleveland on Monday afternoon with a contingent of lawyers and financial advisors to begin reviewing TRW’s nonpublic records.
Until Monday, Northrop and TRW officials could not come to terms over a portion of the confidentiality agreement known as the standstill, which would have precluded Northrop from making another bid for a certain period of time if talks collapsed. TRW wanted a three-year standstill agreement, but Northrop sought a 75-day provision.
Early Monday, TRW and Northrop agreed to a compromise that reduced the standstill period to about five months, sources familiar with the discussions said.
