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Northrop Ups Offer for TRW by Nearly 13%

Defense: Surprise move, which raises hostile bid by $6 to $53 a share, increases merger prospects.

April 15, 2002|PETER PAE | TIMES STAFF WRITER

Northrop Grumman Corp. said late Sunday that it will increase its offer for TRW Inc. by nearly 13% to $53 a share, heightening the prospects for a merger of the two defense behemoths.

In a surprise move that came just eight days before TRW shareholders are scheduled to consider the hostile bid, the Century City-based company said it was raising the offer because of improving economic conditions that have increased the value of TRW's defense and automotive businesses.

The latest offer is $6 more than Northrop's initial $47-a-share bid, which TRW directors rejected as "grossly inadequate," and raises the overall value of the all-stock deal by $752million to about $6.7billion.

The move is likely to make the offer more palatable to TRW investors who have valued the firm at about $51 a share since Northrop announced the takeover bid in February. In New York Stock Exchange trading Friday, TRW shares closed up 49 cents at $51.97.

"We're doing it basically because the global economic conditions have improved TRW's end market, namely the automotive business," Northrop spokeswoman Rosanne O'Brien said. "And the defense industry in general continues to be very strong."

TRW said it was reviewing the new offer and advised shareholders "to take no action at this time."

Since the Sept. 11 terrorist attacks and subsequent military action in Afghanistan, shares of defense contractors have been rising steadily. As such, Northrop shares reached a 52-week high last week, to a level that meant its stock offer for Cleveland-based TRW increased automatically.

Under Northrop's initial proposal, the value of the bid rose if its stock climbed past $113. In the last week, Northrop has hovered around $118 a share, which under its formula would have raised the bid by $2 to $49.

Still, until Sunday, Northrop had refused to raise the bid beyond the formula, saying it would consider doing so only if TRW allowed the firm to look more closely at its financial information.

On Sunday, Northrop Chairman Kent Kresa reiterated calls for TRW to open up its books.

"We strongly encourage TRW shareholders to send a strong message to their board of directors in favor of inviting us to conduct due diligence," Kresa said. "If the TRW board continues to deny us access, this offer will not proceed."

In raising the offer, which will come in an amended filing with the Securities and Exchange Commission today, Northrop said it also is revising the so-called "collar" for the stock exchange ratio. Under the new formula, the offer would rise if Northrop shares rose beyond $123 and fall if the shares fell below $113.

Some analysts have predicted that Northrop's stock could rise as high as $160 a share in the next 12 months in anticipation of increased defense spending.

Still, the bid for TRW became increasingly tense in recent weeks as both companies hired high-profile proxy solicitation specialists. Northrop has been trying to persuade shareholders to pressure TRW directors to begin formal negotiations, and TRW has been trying to fend off the bid by saying it could continue independently.

In response to Northrop's proposal, TRW directors came up with their own breakup plan, which calls for selling the aeronautics business and using the proceeds to pay down debt. It also would split off its debt-laden automotive business and focus on its space and defense electronics business, which is what Northrop covets.

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