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Litton Industries May Sell Its Military Electronics Business

Defense: Firm votes to allow sale of Woodland Hills-based group, in effort to push up lagging stock price.

October 21, 2000|PETER PAE | TIMES STAFF WRITER

Litton Industries Inc., hoping to bolster the value of its sluggish stock, said Friday it may sell its Woodland Hills-based military electronics business.

A company spokesman said Litton directors voted Friday to allow its executives to explore the sale of the Advanced Electronics group, which consists of 12 divisions that make everything from night-vision goggles to laser weapons.

The group employs 9,500 worldwide, including about 2,700 in the San Fernando Valley. It generated about $1.6 billion in revenue in fiscal 2000, down slightly from $1.7 billion a year earlier.

"There has been an ongoing comprehensive analysis of Litton's strategic alignment, and the directors determined that the management should consider the sale," said Litton spokesman Randy Belote.

The move comes as the large defense contractor has been under pressure from investors to shed under-performing businesses and narrow its focus. In addition to military electronics, Litton is one of the largest shipbuilders in the United States and provides information technology services to the government.

Investors seemed pleased with the move, lifting Litton's stock $4.81, more than 10%, to $50.56 a share in trading on the New York Stock Exchange on Friday.

Thomas Meagher, an analyst with BB&T Capital Markets in Tysons Corner, Va., said that Litton may be looking to shed other businesses.

"This may be the first step in breaking the company up into pieces," Meagher said. "The other businesses have not fit well, and this may merely be the first step in paring down the company to its core shipbuilding business."

Still, with prospects of increased defense spending after the presidential election, the military business should have little problem garnering potential buyers, he said.

In addition, Meagher said the unit had been experiencing some cost overruns on two military contracts and may have been the one the company had the "most trouble with."

Focusing on a single business would bring Litton back full circle from the day in 1953 when Charles V. Litton sold his electron-tube company to Charles "Tex" Thornton, a legendary industrialist who built the company into a conglomerate that made everything from gyroscopes to typewriters to medical syringes. Thornton retained Litton's name because his products enjoyed a good reputation among Pentagon brass. Eventually the company became one of the largest suppliers of navigation equipment to the Pentagon.

The company began retrenching in the early 1980s, shedding 25 businesses to focus on defense electronics and shipbuilding.

Michael R. Brown, Litton's chairman and chief executive, said Friday that the company viewed the military electronics group as "sound and having good business potential" and that it was considering the sale "part of our long-held commitment to maximize shareholder value."

Last month, Litton's shares plunged nearly 25% after the company said it expected flat earnings for this fiscal year because of production delays and cost overruns on new ships and military electronic products.

The dismal forecast surprised investors and raised concern among analysts, who said they were having difficulty valuing the company.

Since then, Litton's shares have climbed steadily, thanks to a general rise in defense stocks, but the company continued to lag behind the industry leaders, such as Northrop Grumman and General Dynamics.

"Litton stock has not been getting the respect like the other guys," said Joseph F. Campbell Jr., senior aerospace and defense analyst at Lehman Brothers Inc. "This is one of those transactions prompted and provoked by stock performance."

Indeed. Litton's stock is selling at only about nine times its earnings, compared with an average of 16 to 20 times for other defense stocks.

"The management and the board felt some pressure to have [the stock price] go up," Campbell said. The advanced-electronics business may be "more valuable in the hands of someone else."

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