Northrop Grumman Corp. agreed to pay $7.8 billion in stock for TRW Inc. yesterday in a deal that would complete its transformation from a struggling defense contractor to the second-largest force in the industry.
The deal would give Northrop the space operations of TRW and put the company at the forefront of President Bush's missile defense plans, including the next generation of early-warning satellites and technology still in development to shoot down missiles from space.
Northrop must win approval for the takeover from the Pentagon and the Justice Department and must overcome opposition from the largest defense contractor, Bethesda-based Lockheed Martin Corp. Lockheed is protesting the deal, arguing that there is not enough business in the government satellite market for another large player. With TRW, Los Angeles-based Northrop also would control most of the parts used to build satellites, including radars and sensors, Lockheed has argued.
"We have gone a long way in the transformation of the company," Kent Kresa, Northrop chairman and chief executive, said in an interview. "TRW will add a very important ingredient to that... and that's a wonderful feeling."
Cleveland-based TRW rejected Northrop's two previous offers, $47 and $53 a share, as too low. The companies negotiated the deal over the weekend, and their boards approved it early yesterday morning. The $60-per-share price is higher by $3 than what Wall Street has been willing to pay for TRW shares over the past year.
"Our board was unanimous," TRW Chairman Philip A. Odeen said in an interview. "This was the right thing to do, and there was tremendous upside for our people and our company."
Kresa said the company believes that any industry opposition to the deal "can be resolved amicably without any sale of assets."
Northrop beat out last-minute rivals BAE Systems North America, Raytheon Co. and General Dynamics Corp., all of which wanted TRW's government satellite business.
If approved by regulators and shareholders, Northrop and TRW would create a company with annual sales of more than $26 billion and 123,000 employees. In the Washington region, Northrop has 32,000 employees while TRW has a few thousand.
Under the terms of the agreement, Northrop would assume more than $5 billion in TRW debt. TRW's auto-parts business, which accounts for two-thirds of its revenue, would either be sold or spun off when the deal closes, which is likely to be before the end of the year, Northrop officials said.
There won't be any major layoffs, but TRW's headquarters in Cleveland, which employs about 300 people, would be closed, Northrop officials said.
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