Clearing a major hurdle in its proposed purchase of rival military contractor TRW Inc., Northrop Grumman Corp. said Tuesday that it has agreed to sell TRW's auto parts business to a New York-based private equity firm for $4.73 billion.
The sale to Blackstone Group, which manages the world's largest buyout fund, is expected to make the $7.8-billion TRW acquisition more palatable to Northrop shareholders, who are scheduled to vote on the TRW purchase next month.
Century City-based Northrop, which develops military aircraft, electronics and computer software, mainly wants TRW's space and defense electronics business and had been looking to sell or spin off other TRW operations, including the debt-ridden auto parts unit.
The auto parts sale is dependent upon the completion of Northrop's acquisition of TRW, which is awaiting antitrust review by the Defense and Justice departments.
Northrop expects the deal to be approved by year's end. If completed it would make Northrop the nation's second-largest defense contractor, surpassing Boeing Co. and rivaling Lockheed Martin Corp., amid one of the largest defense buildups in two decades.
TRW had recently sold its aircraft components unit for $1.5 billion. Northrop said it would use the proceeds from both sales to pare down debt that would be incurred from the TRW purchase.
"As we've maintained, Northrop Grumman's strategic interest is in TRW's space, electronics and systems businesses," said Northrop Chairman Kent Kresa, in a statement. "We believe that our agreement with Blackstone is an attractive transaction for our shareholders and will allow our management team to quickly focus its full attention on integrating TRW's portfolio."
Although Northrop was hoping for an outright sale of the auto parts business, it will still retain a 20% equity interest in the auto parts business, which was intended to be picked up by another private equity firm, Carlyle Group.
The Washington-based firm recently pulled out of a joint bid with Blackstone, leaving the portion to Northrop.
Northrop executives still hope to sell the remaining interest once the TRW acquisition is completed. Investors seemed pleased by the TRW auto parts sale, which includes $3.76 billion in cash, $600 million in debt securities and a $368-million equity interest in the unit. Northrop shares Tuesday rose $2.95 to $90.41 in trading on the New York Stock Exchange.
With about $10 billion in revenue, TRW's auto parts business ranks among the top 10 suppliers. Based in Livonia, Mich., the unit makes steering systems, brakes, air bags and seat belts.