By THOMAS J. SHEERAN, Associated Press Writer
CLEVELAND (AP) - Northrop Grumman Corp. said it would proceed with a hostile bid for TRW Corp. after the space, defense and automotive products maker rejected an unsolicited $5.9 billion takeover offer.
"We continue to believe that such a transaction would be in the best interests of both companies' shareholders," Kent Kresa, chairman and chief executive of Los Angeles-based Northrop Grumman, said in a statement late Sunday.
The TRW board voted unanimously to reject the defense giant's offer, the company said in a statement Sunday.
TRW said the Northrop Grumman proposal undervalues TRW's leadership positions in the space, defense, information systems and automotive parts industries.
"This is all about shareholder value and the Northrop Grumman proposal does not begin to recognize the value of TRW's franchise," said Philip A. Odeen, TRW's chairman.
On Monday, TRW asked shareholders to take no action until it reviews the offer, saying it would make a recommendation by March 15.
The offer, $47 a share, was an 18 percent premium over TRW's closing price of $39.80 on Feb. 21, the day before the offer was announced.
Since then, TRW stock has been trading above the offered price of $47 a share, indicating Wall Street has been expecting a higher offer. In midday trading Monday on the New York Stock Exchange, TRW shares rose an additional 89 cents to $50.94. Northrop Grumman shares were down $4.15 a share, to $103.60.
Northrop Grumman spokesman Randy Belote would not say whether the company would raise its bid since TRW's stock is trading slightly higher than the exchange offer.
"What we're suggesting is that at this point we have a fair and equitable offering of common stock at $47 a share," Belote said.
But in his statement, Kresa said Northrop would welcome the opportunity to consider any non-public information about TRW in order to consider "any enhanced values that might be demonstrated."
That probably means Northrop is willing to raise its bid, analyst Kenneth Blaschke of Deutsche Bank Alex. Brown Inc. said in a research note to clients.
"We still believe a deal to buy TRW will get done between $50-$55 a share," Blaschke wrote.
Analysts also said bids from other suitors are likely, including General Dynamics Corp., which lost out to Northrop in a November bidding war over the Newport News Shipping nuclear carrier shipyard.
Odeen and Kenneth A. Freeman, lead director in TRW's review of the takeover bid, informed Northrop Grumman of their decision in a letter to Kresa.
It said the TRW board views Northrop Grumman's proposal "as an opportunistic attempt ... at a time when TRW's stock price was temporarily depressed after the sudden departure of David Cote."
Cote, 49, who had served for just over six months as chairman, president and chief executive, quit Feb. 19 to become CEO of Honeywell. The Northrop bid was announced three days later.
As part of its offer, Northrop said it would sell TRW's automotive parts business, which accounts for 64 percent of its sales and 58 percent of profits.
Analysts had concluded that Northrop would benefit most from TRW's satellite production unit, which makes satellites used by the military to spy on enemies and coordinate troops, ships and airplanes.
Northrop is a relatively small player in the market for military products used in outer space.
Northrop said the deal would generate sales in 2003 of between $26 billion and $27 billion, putting the company slightly ahead of Lockheed Martin in terms of total sales. Lockheed is the largest U.S. defense contractor.
Kresa added that Northrop Grumman will be filing a lawsuit in Ohio challenging elements of the state's anti-takeover laws, saying they "discriminate in favor of some stockholders over others."
Tom Geyer, spokesman for the Ohio Department of Commerce, said the state laws do not prohibit hostile takeovers, though the laws are harder to comply with than in negotiated takeovers.