Northrop Expects To Complete Acquisition of Litton

Northrop Expects To Complete Acquisition of Litton Monday

Defense contractor's proposed $5 billion deal receives regulatory approval.

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By Dow Jones Business News    CFO.com    Mar 30, 2001

LOS ANGELES -- Northrop Grumman Corp. said U.S. and overseas regulators have approved the defense contractor's proposed $5 billion acquisition of shipbuilder Litton Industries Inc. and expects to complete the deal April 2.

Acquiring Litton points Los Angeles- based Northrop, once a prime contractor in military airplanes, toward a new role as a major supplier of defense electronics and military ships, including destroyers. Litton, Woodland Hills, Calif., also has moved into the market for small cruise ships and double-hull oil tankers.

Northrop (NOC) and Litton (LIT) in January restructured the terms of their December agreement to overcome complaints by Litton's largest shareholder about the original offer to pay $80 a share. Under the revised terms, Litton's shareholders can either accept the payout or take the equivalent in Northrop common stock or a newly issued preferred stock. There is also a smaller payout to holders of Litton's Series B preferred shares.

Northrop will emerge as a defense and information concern with about $15 billion in 2001 sales, more than doubling its revenue last year of $7.62 billion.

Northrop, the maker of the B-2 bomber and the J-Stars airborne-surveillance plane, had been a big competitor in the aerospace business for many decades but that business has dwindled significantly in recent years. Last year, the company sold its commercial-jet business as well.

Since 1998, Northrop had been making smaller acquisitions that bolster its defense-electronics and information-technology businesses, while searching for a larger combination that would bring it closer in size to the biggest prime contractors, such as Lockheed Martin, Raytheon Co. and Boeing Co. The same has been true for Litton, which decided to put its defense-electronics business on the block after struggling to compete against much larger rivals such as Northrop and Raytheon.

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Northrop to Buy Litton for $3.8B
Friday, December 22, 2000
By Chris Stetkiewicz,
Reuters

Northrop Grumman Corp., the nation's fifth-largest defense contractor, said on Thursday it would buy Litton Industries Inc., the No. 7 U.S. defense contractor, for $3.8 billion.

The deal would vault Northrop into the top tier of U.S. defense giants and help it compete for prime military contracts instead of settling for supporting roles, company executives said.

The combined companies will have annual revenues of $15 billion, helping Northrop close in on the No. 4 U.S. defense contractor spot held by General Dynamics Corp. GD.N , and the business will grow to $18 billion by 2003, Northrop said.

"With this combination, Northrop moves out of the mid-size and into the top tier defense, aerospace and IT (information technology) companies," Northrop Chairman Kent Kresa said on a teleconference.

LITTON HOLDERS TO GET $80 A SHARE

Los Angeles-based Northrop, which specializes in high-tech weapons systems, said it will pay $80 for each share of Litton common stock and $35 for each series B preferred share and will assume $1.3 billion in Litton debt.

Before the deal was announced, Litton shares had closed 15/16 higher at $62-5/8 and Northrop finished down 3/16 at $81-15/16 on the New York Stock Exchange. In after-hours trade on Instinet, Litton rose to $77-1/8.

In a release, Northrop said the acquisition would help it trim costs by at least $250 million over the next few years.

Credit Suisse First Boston and Chase Manhattan Bank will provide $6 billion in financing to Northrop, which said the purchase would boost earnings by 7 to 10 percent in 2001, excluding pension income and amortization and including a planned sale of new stock.

Investment banks Salomon Smith Barney and Goldman Sachs & Co. advised Northrop on the deal, while Merrill Lynch & Co. advised Litton.

Litton Chairman Michael Brown will retire and Ronald Sugar, currently president at the Woodland Hills, Calif., defense electronics and shipbuilding company, will run the company as a subsidiary of Northrop, the companies said.

The deal is expected to close in the first quarter of 2001, pending approval by the Justice Department and the Pentagon under the incoming Bush administration, which are not expected to oppose it.

"Given the mix of the businesses, I don't expect there will be any problems," said Jon Kutler, president of Quarterdeck Investment Partners, which specializes in defense industries.

NORTHROP KNOWS REGULATORY HURDLES

Northrop's stock plunged from a high of $139 to as low as $42-5/8 last March after the U.S. government waited a full year before denying a proposed merger with Lockheed Martin Corp., the world's biggest defense contractor, in 1998.

"That put Northrop in limbo for a year. They couldn't do anything because they thought they would be part of Lockheed Martin," said JSA Research analyst Paul Nisbet. "Obviously that did them considerable harm."

Likewise, the government barred Litton's attempt to buy Newport News Shipbuilding Inc., although it was allowed to buy Avondale Shipbuilding.

The Northrop-Litton combination would produce little overlap and would not jeopardize competition among the shrinking pool of defense contractors, analysts said.

Both companies have since accumulated a stable of smaller, specialized defense electronics businesses which were expected to mesh nicely under one roof.

"No one knows more about managing the regulatory process than Northrop Grumman," Kutler added.

SPIN-OFFS POSSIBLE

Analysts said the merger would likely lead to some spin-offs of profitable units that may lie outside the core electronics and shipbuilding businesses, but Kresa said talk of divestitures was "premature."

Northrop, which will see its employment double to 79,000, will "look at all units for cost reduction. We will look at redundancies. We will look at all assets to see if they have a higher value elsewhere," Kresa said.

"All of them have great value. There may be some that are growing ... where it makes sense to have them to go at a higher (price-earnings ratio) than in the military sector, but we'll have to look at that," he added.

Ratings agencies Standard and Poor's and Moody's Investors Service both warned that they may cut corporate ratings of Northrop Grumman and Litton because of the increased debt at the combined firm.

Kent Kresa, Northrop Grumman's chairman and chief executive officer said that the post-deal equity issue would help bring the company's debt-to-capital ratio back to the "low 40s," from a more leveraged 60 percent after the new borrowing.

Northrop values its investment grade ratings and Kresa vowed to boost annual debt paydowns to up to $800 million from $400 million to $500 million now.

As of September 30, Northrop debt stood at $1.07 billion.

 

Northrop buys Litton, adds clout

BY Paula Shaki Trimble
December 22/00

Northrop Grumman Corp.’s $5.1 billion purchase of Litton Industries Inc. is likely to make Northrop’s Logicon Inc. unit competitive on contracts as large and comprehensive as the Navy Marine Corps Intranet, according to industry analysts and spokesmen for both companies.

"Should there be a program of that magnitude, we will have the critical mass to bid on those types of large programs," said Bob Koch, Logicon’s director of corporate communications.

Northrop announced late Dec. 21 that it had agreed to purchase Litton Industries. The deal would make Northrop a top competitor with companies such as Lockheed Martin Corp. and Raytheon Co. for defense, aerospace, electronics, shipbuilding and information technology business. The transaction is expected to close in early 2001.

Northrop in the past few months has closed purchases of Federal Data Corp. and Sterling Software Inc.’s federal group and has thereby increased its presence in the federal information technology marketplace.

The purchase of Litton will add Litton’s recently restructured Information Systems Group, which includes three Litton PRC Inc. business divisions — government services, defense and range systems — and Litton TASC Inc. Those companies would become part of Logicon, Northrop’s IT unit.

"We can basically bid on anything as a prime that comes out in the marketplace," Koch said. If the acquisition is approved, combined sales for the companies are projected at about $15 billion. Logicon expects annual sales up to $4 billion, he said.

Litton TASC’s business at government intelligence agencies will be a key asset to Logicon, which has not been as strong in that market, said Tom Meagher, vice president of equity research for BB&T Capital Markets.

"It gives them an overarching reach into every federal agency and jump starts them into the state and local market," where Litton PRC has had some success, Meagher said. "They had to do this transaction if they were going to be a long-term player in defense and government IT."

Intelligence work makes up about 25 percent of Litton’s IT revenue, which is an important benefit for Northrop, said Phil Finnegan, a senior market analyst for the Teal Group Corp.

"Intelligence customers tend to be very loyal to their contractors," Finnegan said. Intelligence work also is important as Northrop Grumman promotes an integrated digital battlefield for the Defense Department that would use navigation technologies and precision-guided weapons as well as intelligence systems, he said.

Northrop Grumman’s IT business was growing rapidly before the deal, Koch said. Logicon had projected revenues of $2.5 billion in 2001 — 25 percent of Northrop’s revenue — without the acquisition of Litton, he said. Several years ago, Logicon made up about 10 percent of the whole company.

The deal will enable Litton to grow more quickly than it would on its own, said Randy Belote, Litton spokesman.

"The combination of Logicon, PRC and TASC is huge," Belote said. In the end, the whole organization will be stronger in information systems and defense as the companies play off each other’s strengths, he said.

There is some overlap in Northrop Grumman’s and Litton’s federal IT businesses, particularly on large indefinite-delivery, indefinite-quantity contracts, but Northrop is experienced in integrating those contracts, Koch said.

It has taken only a few weeks to integrate FDC and Sterling into Logicon, Koch said, and Northrop Grumman pays particular attention "to things that directly affect our employees and our customers." Layoffs are not expected as a result of the acquisition, he said.

Source: http://www.fcw.com/fcw/articles/2000/1218/web-litton-12-22-00.asp

 

 

Northrop Grumman Announces Completion of Merger with Litton Industries Inc.

LOS ANGELES, May 30 /PRNewswire/ -- Northrop Grumman Corporation (NYSE: NOC - news) announced today that it has completed the acquisition of all shares of Litton Industries Inc. common stock not previously purchased in its tender offer for Litton that expired on April 2, 2001.

As a result of the statutory merger completed Wednesday, Northrop Grumman now owns 100 percent of Litton's common stock. Litton shareholders as of the time of the merger will receive $80 in cash for each common share.

Northrop Grumman Corporation is a $15 billion, global aerospace and defense company with its worldwide headquarters in Los Angeles. Northrop Grumman provides technologically advanced, innovative products, services and solutions in defense and commercial electronics, systems integration, information technology and non-nuclear shipbuilding and systems. With 80,000 employees and operations in 44 states and 25 countries, Northrop Grumman serves U.S. and international military, government and commercial customers.

SOURCE: Northrop Grumman Corporation