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AEROSPACE MEGA-MERGER : DOING THE DEAL

2 Conquerors of the Sky

July 04, 1997|DEBORA VRANA | TIMES STAFF WRITER

It was well after midnight Wednesday in the gleaming New York law offices of Dewey Ballantine, when investment bankers, lawyers and aerospace executives finalized weeks of negotiations for the $11.6-billion merger of Lockheed Martin Corp. and Northrop Grumman Corp.

Though tense late-night negotiations in aerospace industry mega-mergers are nothing new, what made this deal unique was the relationship of mutual respect between the two chief executives: Northrop Chairman Kent Kresa and Lockheed Chairman Norman Augustine.

"Having a very good personal rapport between the two most senior people at these companies was a major incentive in getting this deal done," said one banker who worked on the merger. "Often there are standoffs with these industry consolidations, but this one was remarkable."

After Lockheed approached Northrop with an offer in May, the two CEOs talked frequently, sometimes several times a week, bankers said.

Both men have similar backgrounds, strong reputations in their industry, have played tennis together and are members of the exclusive Conquistadores del Cielo (Conquerors of the Sky), an all-male group of aerospace and aviation industry leaders who get together periodically for exclusive networking at a rural Wyoming retreat.

Negotiations became fierce at times, with some tough sticking points arising, especially about price. Bear, Stearns & Co., a major player in aerospace industry consolidation, advised Lockheed, and Salomon Bros. represented Northrop.

But it was the contact between the two CEOs that kept the merger ball rolling. Augustine and Kresa met in mid-June at the Paris Air show, and Augustine put a deal on the table that made the merger look as if it could be a reality, bankers said.

"This is the logical conclusion of the consolidation of the defense industry," said Denis Bovin, a vice chairman with Bear Stearns. There are now three robust competitors--Raytheon, Lockheed and Boeing. Its a win-win for the industry."

Another important part of this deal, said bankers, was the relative swiftness in which it came about and that there were no hints of the merger to Wall Street or the media.

"We're all very proud of the fact there were no leaks," said Petros Kitsos, a vice president in mergers and acquisitions with Salomon Bros. in New York.

Kitsos and other Salomon bankers, including Michael Carr, managing director of corporate finance, had helped Northrop with many of its major acquisitions in the last four years, some that Augustine had clearly had his eye on.

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In 1994, Northrop bought Grumman Corp., outbidding Martin Marietta Corp. and its then-CEO Augustine. The Grumman deal established Northrop as a major contractor in the defense business. Northrop later made other acquisitions, most recently the $750-million purchase of Logicon Inc. in Torrance. By making key acquisitions to maintain and strengthen its position in the market, Northrop watched its stock price steadily increase.

"The bottom line was they liked the hand they held and they had no intention of selling," said one source close to the company. "They were happy with what they had."

But, eventually, after a price was struck that they couldn't ignore, it was Northrop's turn to be acquired. Although it was difficult to pinpoint exactly when the deal became a reality, banks said things began to heat up in recent weeks and the deal was hammered out in all-night sessions during the last five days.

The Lockheed board voted Wednesday at Dewey Ballantine and the Northrop board voted late Wednesday night at the Waldorf Astoria on Park Avenue in New York.

As part of the deal, Kresa will become a Lockheed vice chairman and will join the company's board. Augustine had been scheduled to retire Aug. 1 before the deal was made.

There was some reflection and some melancholy Wednesday on the part of Northrop when the deal was finalized, as the longtime Southern California industry innovator would no longer be a stand-alone company, said those on both sides.

"There were congratulations, but there wasn't much celebrating," said one banker.

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