WASHINGTON — The wave of consolidations sweeping America's defense industry turned aggressive Thursday as Northrop Corp. launched a $2-billion offer to snatch Grumman Corp. away from Martin Marietta, which agreed earlier this week to buy the firm for $1.9 billion.
If Northrop succeeds, it will have substantially improved its chances of surviving as an independent company in what will be a brutal industry contraction over the next few years. The alternative raises the risk that Northrop, which is based in Century City, might ultimately be swallowed up by a predator.
The government has encouraged the defense industry to eliminate some of the excess production facilities that are driving up weapons costs and hurting the international standing of U.S. contractors. The Pentagon would prefer two or three healthy combat aircraft producers instead of seven companies barely surviving on ever-diminishing government budgets. Moreover, a stronger U.S. industry will be more globally dominant, theoretically lowering the Pentagon's costs.
But the downsizing is accompanied by deep pain for employees who will lose their jobs and for communities that are likely to see large industrial plants close permanently. Industry analysts have estimated that 10,000 to 15,000 jobs could be eliminated in a merger of Grumman with another firm.
Grumman spokesman Robert Harwood declined to answer questions about the Northrop offer, but Martin Marietta issued a harshly worded rebuttal, asserting that it "is deeply disappointed that Northrop has chosen to launch a hostile attack that seeks to disrupt" a friendly merger.
Martin Marietta added that "the attack by Northrop degrades the entire character of the rational consolidation taking place within the United States national security industrial base."
The tough talk reflects a dramatic change in what has been a gentlemanly business, where chief executives often fraternize with one another and talk about common goals. Although mergers have been taking place for several years, none has been hostile and now for the first time prime contractors are trying to eat other prime contractors in a battle for survival.
Northrop denied that it was making a hostile bid. But after failing in two previous efforts to acquire companies amid a rapid shrinkage of the defense business, Northrop signaled Thursday that it is ready for a tough fight to win Grumman, a longstanding manufacturer of Navy aircraft that has highly regarded electronics technology.
