Speculation over a possible takeover of Litton Industries intensified Friday when Litton shares shot up $11 on trading volume of 2.1 million shares, making it the fourth most active issue on the New York Stock Exchange.
The Beverly Hills-based conglomerate closed at $89 a share, down $4.50 from its high for the day. The decline came after General Electric put out a carefully worded statment saying that it had not discussed a possible merger with Litton.
The GE statement appeared to leave open the possibility that GE had discussed such an acquisition with others, however. Wall Street has been awash with rumors that GE would acquire Litton and sell off the firm's petroleum exploration services operations to Schlumberger, the Dutch oil field services firm.
Litton Vice President F. James Carr said the company would not comment on the rumors. He said Litton Chairman Fred O'Green is out of the country making "customer calls."
Although none of the rumors of the past three days have been confirmed, analysts said the large price gain and heavy volume indicate that very large institutional investors have staked out major positions in Litton.
"It is not just a bunch of ignorant retail investors going off on some wild rumor," said Laurence Lytton, analyst at Drexel Burnham Lambert. "There are some very sophisticated investors putting big money into the stock at these prices."
Even if no deal is imminent, Lytton said, arbitrageurs may believe that they can turn the rumors into a self-fulfilling prophecy by amassing enough stock to make the company vulnerable to a takeover.
"The status quo has changed," he said. "If Fred O'Green wants to remain independent, he better rethink his strategy."
Litton has just completed a financial restructuring, executed by Morgan Stanley & Co., designed to bolster its stock value and ward off unwanted buyers. But it now appears that the restructuring, which cost Litton dearly, has had little lasting effect.
The firm spent $1.3 billion earlier this year to buy back its stock at a premium of $87.60 a share not long before it announced a major earnings disappointment to investors.