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Investors Push Stock Beyond Northrop Offer


The $2-billion takeover fight for Grumman Corp. intensified Friday as investors bid the price of Grumman's stock well above what Northrop Corp. offered to pay for the defense contractor a day earlier.

Traders clearly were expecting Martin Marietta Corp., whose $55-a-share offer for Grumman was eclipsed by Northrop's $60 bid Thursday, to make a counteroffer approaching $65 a share, or $2.2 billion.

Martin, a Bethesda, Md.-based defense giant that has promised an "appropriate" response to Northrop's surprise action, remained silent about its plans Friday. Northrop, based in Century City, and Grumman, based in Bethpage, N.Y., also declined to comment.

Northrop, which has more than 21,000 workers in Southern California, makes the B-2 bomber and portions of the F/A-18 jet fighter and Boeing 747 commercial jetliner. The company also makes defense electronics.

Grumman, once a premier maker of jet fighters, now mainly makes surveillance and other defense electronics systems. Martin is one of the industry's largest concerns, with interests in electronics, missiles, satellites and rockets.

Analysts said they see a pair of determined foes in Northrop and Martin, both of which have secured bank financing well in excess of $2 billion. For those reasons, traders had little trouble projecting that the bidding would intensify.

"Marietta wants the company, and it would be ridiculous for them to walk away now after one opposing bid," said Thomas Canning, aerospace analyst for Standard & Poor's Corp.

Northrop and its soft-spoken chairman, Kent Kresa, are viewed as no less willing to back down--as evidenced by Northrop's decision to launch a hostile bid for Grumman and thus disregard the normally genteel merger tactics common to the defense industry.

As a result, Grumman's stock soared $3 a share to $64.75 in New York Stock Exchange composite trading. Northrop, meanwhile, edged up 12.5 cents to $41.375, and Martin dropped $2 to $44.50, also on the Big Board.

With Grumman clearly "in play," there was speculation that some other defense contractor might enter the fray. A variety of candidates were mentioned, from Lockheed Corp. to GM Hughes Electronics Corp. to Boeing Co.

But analysts played down the idea of a wide-open bidding war, saying the battle would likely be left to Northrop and Martin. Still, the analysts had also been nearly unanimous earlier this week in predicting that Northrop--which had privately offered $50 a share for Grumman before Grumman embraced Martin's merger plan--would not make a hostile bid.

Northrop had little choice, however. With $5.1 billion in sales last year, the company is faced with either buying another firm or being bought itself, as the industry consolidates in the face of shrinking defense budgets. Martin is already one of the largest defense players, with $9.4 billion in sales last year.

"For Northrop, this is an issue of strategic importance," said Cai von Rumohr, analyst at the investment firm Cowen & Co. in Boston.

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