Shares of Northrop Grumman Corp., the fourth-largest U.S. defense contractor, rose to more than $113 on Thursday, boosting the value of its $11.4-billion bid for smaller rival TRW Inc.
Los Angeles-based Northrop is offering to exchange stock worth $47 for each TRW share, according to a sliding exchange-rate scale based on the market price of Northrop stock before the offer expires.
In a document filed Thursday with the Securities and Exchange Commission, Northrop said the exchange ratio would be at least 0.4159 regardless of how high its stock may go, and no more than 0.4563 regardless of how low its stock may fall.
The minimum exchange ratio means that a Northrop stock price of $113 or more automatically boosts the bid's value above $47.
Northrop gained $1.55 to $113.05 on the New York Stock Exchange, the highest price since Feb. 21, which was just before the firm launched its offer.
Some analysts predict that Northrop's stock may go as high as $160 in the next 12 months as the Pentagon boosts defense spending. The price is up 12% this year.
Northrop is trying to convince TRW shareholders that the acquisition is good for them. Cleveland-based TRW has rejected the offer as too low.
Northrop has refused to raise its offer unless TRW opens its books, which TRW has refused to do.
"There are too many 'what ifs' involved," said Robert Norfleet, an analyst with Davenport & Co., referring to whether TRW will embrace Northrop's bid.
TRW shares eased 14 cents to $51.47 on the NYSE Thursday. The stock is trading at a premium to Northrop's bid because many investors believe the offer will be increased or a rival bid will surface.