TRW Again Rejects Northrop Grumman
TRW Again Rejects Northrop Grumman
Mar. 14, 2002
CLEVELAND (AP) _ The TRW Inc. board on Wednesday rejected Northrop Grumman Corp.'s unsolicited $5.9 billion buyout offer for a second time and said it plans to spin off its automotive parts business within nine months.
TRW, which is also a major defense manufacturer, said it has also begun preliminary talks with others who have expressed interest in buying all or part of the automotive business and its aeronautical systems business.
The Northrop Grumman offer, valued at $47 per share, ``does not begin to recognize the value of TRW's franchise,'' TRW chairman Phillip Odeen told investors in a conference call.
The offer remains well below the current market price of TRW's common stock, which rose 89 cents to close at $51.17 in trading Wednesday on the New York Stock Exchange. Northrop shares gained 43 cents to close at $109.90, also on the NYSE.
Northrop Grumman Chairman Kent Kresa responded by calling on the TRW board to negotiate ``a transaction that is in the best interests of the shareholders of both our companies.''
Kresa said TRW ``continues to hold us at arm's length and deny us access to information that could support its claim that an offer of greater value is warranted.''
Kresa said Northrop would continue to make its case directly to shareholders, who are scheduled to meet April 22 to consider the offer.
``What we hope will come out of the meeting is the shareholders will be very clear to the board of directors that they should consider our offer and let us do due diligence,'' Kresa said in an interview.
``We have a track record of paying for value and we'll be happy to do that. But based on the data we have today, this is the best offer we can put forward.''
Analysts said TRW's proposal makes the company more valuable and that Northrop Grumman will have to raise its offer if it still wants the Cleveland-based company.
Andrew Casey, an analyst for Prudential Securities, put the value of TRW's plan at $52 per share. ``Why would a TRW shareholder or management member entertain something at $47?'' he said.
The TRW board also urged shareholders to reject Northrop Grumman's hostile tender offer. TRW directors rejected Northrop's initial offer 10 days ago.
TRW said it intends to create more value for its shareholders by cutting its debt ahead of schedule and spinning off its automotive parts business while keeping its defense business.
Mark Koznark, an analyst with Midwest Research, said TRW already had been thinking about the automotive spinoff. ``Northrop clearly accelerated this, but is not anything that wasn't already contemplated,'' he said.
The automotive business _ best known for air bags, seat belts and sensors _ accounts for 64 percent of the company's sales and 58 percent of profit. TRW hopes to complete a spinoff in six to nine months.
Odeen said the automotive business would be an attractive public company with a diverse set of products and customers that would benefit from an increase in auto production this year.
``It will be a great company,'' he said. ``It will do just fine on its own.''
Several companies already have expressed interest in the aeronautical systems business, which had $1.1 billion in sales last year, company officials said on the conference call. They would not give details but said preliminary negotiations have begun.
The company said the sale of its aeronautical systems business and other businesses could reduce TRW's $5.8 billion in debt by as much as $2 billion.
TRW's space and defense business, which had sales of $5.2 billion last year, would be able to capitalize on the growth in the national defense budget, including the missile defense plans and homeland security, said Bob Swan, TRW's chief financial officer.
The TRW board said Northrop Grumman made its offer when TRW's stock price was depressed following the unexpected resignation of David Cote, TRW's former chairman, president and chief executive. Cote jumped to Honeywell International as its chief executive.
TRW also said that on March 6 it received notice that TRC Capital Corp., based in Toronto, began its own unsolicited offer to purchase up to 4.25 million TRW common shares, or approximately 3.4 percent of TRW total common shares outstanding, at a price of $50 per share in cash.
The TRW board Wednesday recommended that its shareholders reject the TRC Capital offer.
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