Northrop Grumman Agrees To Buy TRW For $7.8 Billion

By PAUL SINGER, Associated Press Writer

CLEVELAND (AP) - After months of wrangling, Northrop Grumman Corp. has agreed to buy TRW Inc. for $7.8 billion, nearly $2 billion more than it originally offered.

The deal announced Monday will make Northrop the nation's second largest defense contractor with projected annual revenues of more than $26 billion and approximately 123,000 employees.

TRW's headquarters in suburban Lyndhurst will close after the deal is completed, said Northrop Chairman Kent Kresa.

TRW currently employees about 380 people at its headquarters on a wooded, 120-acre campus about 15 miles from downtown Cleveland, said spokesman Jay McCaffrey.

Kresa said at a news conference there will be layoffs as well from the corporate staff, but he would not immediately provide a number and said Northrop would attempt to find jobs elsewhere for affected employees.

The deal caps more than five years of efforts to transform Northrop from the prime contractor on the B-2 Stealth bomber to the country's largest shipbuilder, a leader in unmanned and computer warfare, and a major diversified defense contractor on par with Boeing Co. and Lockheed Martin Corp.

Northrop's rapid growth came as it bought Litton Industries, then Newport News Shipbuilding and several other smaller companies. But the bid for TRW was its largest so far.

TRW manufactures space and defense products including spacecraft and satellites, defense communications equipment and high-energy lasers. Northrop makes planes, ships and computer warfare systems, among other things.

In a conference call, Kresa said he expects the combined company will benefit from increased defense spending as the nation tries to protect itself from terrorist attacks and other threats.

The deal, he said, "is in the best interest of the country's national defense and homeland security."

Northrop said it will pay $60 a share in its stock for each TRW share, or 27 percent more than it had initially offered in February. TRW closed at $56.98 a share on Friday in trading on the New York Stock Exchange. Northop will also assume about $4 billion in TRW debt in the deal.

In February, Northrop offered $5.9 billion in stock -- or $47 per share -- for Cleveland-based TRW.

When TRW said the offer underestimated the value of the company, Los Angeles-based Northrop raised its bid to $6.7 billion, or $53 per share.

TRW executives said the increased offer was still too low, and shareholders rejected several Northrop proposals to force TRW to accept the bid. Northrop ultimately agreed to sit down with TRW and negotiate a new price, which resulted in Monday's announcement.

TRW will still sell its aeronautical systems business to aerospace parts maker Goodrich Corp. for $1.5 billion in cash, a deal that was announced in June.

Northrop also will spin off TRW's auto parts business, either through a sale or as a stand-alone company. TRW executives had planned to separate the auto parts business as part of the company's broad restructuring plan.

"When we first proposed to acquire TRW, we stated that we were prepared to pay full and fair value for the company," Kresa said.

TRW Chairman Philip Odeen said that for the past several months, the company has "undertaken a comprehensive strategic review with the sole objective of enhancing shareholder value. This transaction achieves that objective."

The sale must still be approved by shareholders of both companies, federal regulators and the European Union. Kresa said he anticipated no significant antitrust approval hurdles in the U.S. or overseas. The companies expect the deal to be completed by the end of the year.

Northrop shares fell 4.5 percent, or $5.62 a share, to $119.38 in midday trading on the NYSE. TRW shares rose 1 cent to $56.99.

(Copyright 2002 by The Associated Press. All Rights Reserved.)