Northrop Grumman exec discusses hostile takeover of TRW

Ronald Sugar, president and chief operating officer of Los Angeles-based defense contracting titan Northrop Grumman, on Wednesday outlined his company's plan to mount a hostile takeover of rival systems integration firm, TRW of Cleveland.

In a speech to journalists at the National Press Club in Washington, Sugar said that Northrop plans to offer $47 for each share of TRW stock and has requested a special meeting of TRW shareholders to review the plan. Northrop first announced an unsolicited offer to buy TRW on Feb. 21, but the bid turned hostile the following day when TRW's board of directors unanimously rejected Northrop's offer.

Sugar said the acquisition would strengthen Northrop Grumman's presence in the spacecraft systems, electronic communications and information technology markets. Northrop is already one of the federal government's top information technology contractors. Sugar estimated that the acquisition of TRW would turn Northrop into a $26 billion to $27 billion company by the end of 2003.

Sugar also said Northrop has been in talks with firms that might buy TRW's automotive division, but would not name the firms. Northrop has no interest in keeping the division, which accounts for 60 percent of TRW's total sales. The company is also considering spinning off the automotive division and creating a new firm out of the remnants, Sugar said.

In reference to the burgeoning homeland security market, Sugar said Northrop's ability to perform large-scale information technology projects, such as massive data integration or the tracking of physical assets such as shipping containers, puts it in a prime position to take advantage of increased federal spending. President Bush's budget asks for a more than 15 percent increase in information technology spending in fiscal 2003.

"The company is really in the right place at the right time," he said.

Sugar said Northrop is closely watching the first requests for proposals that are starting to emerge for homeland security-related contracts. He specifically mentioned the congressional mandate to place explosive-detection devices in every airport in the United States by the end of the year, but Northrop officials said the company has no plans to bid on the contract to oversee that work.

The acquisition of TRW would mark the third time in two years that Northrop has absorbed rival technology firms. The company last year purchased Litton Industries and Aerojet, as well as Newport News Shipbuilding. That acquisition made Northrop the largest shipbuilder in the world, Sugar said.

TRW officials have characterized the hostile takeover attempt as opportunistic, since it came immediately after the departure of David Cote, TRW's now ex-chief executive officer. Cote shocked his former company and Wall Street analysts when he resigned to take a position as CEO at Honeywell International Inc. of Morristown, N.J. Two days later, Northrop made its unsolicited offer.

Sugar is a 20-year veteran of TRW who joined Litton in June 2000 before Northrop bought it. Sugar was denied the chief executive position at TRW two years ago. He wouldn't elaborate on the takeover attempt beyond describing the scope of Northrop's offer and what the company feels the acquisition adds to Northrop's market presence.

Some large TRW shareholders have reportedly signaled their dissatisfaction with Northrop's offer. Northrop's stock has been trading down since it made the unsolicited bid. As of Tuesday, the price per share was down 13 percent. Shares were trading Wednesday on the New York Stock Exchange at $107.95 an hour before closing.

Conversely, TRW shares have increased in value. An hour before closing, shares were up 24 cents from the previous day's close of $50.35.

Each firm's stock traded Wednesday on volume of over 1 million shares.