Northrop and TRW Shareholders Give OK to Merger

Shareholders approved Northrop Grumman Corp.’s purchase of TRW Inc. for $7 billion Wednesday, creating a defense behemoth that will make everything from aircraft carriers and spy satellites to White House Web sites and translation programs for Balkan languages.

In sheer size, Northrop will be rivaled only by Lockheed Martin Corp., the nation’s largest defense contractor. Northrop will have customers in virtually all branches of the government, including the Pentagon, NASA and the Centers for Disease Control and Prevention. The merger also will dramatically alter the industry’s landscape, adding Northrop to what so far had been a duel between Lockheed and Boeing Co. for developing the nation’s most-sophisticated weapon systems.

With the acquisition of TRW, Century City-based Northrop becomes the government’s biggest information technology company, surpassing Lockheed. It also becomes one of the leading makers of space systems and electronics, competing against Boeing, the world’s largest commercial satellite maker.

Northrop, which has been on an eight-year acquisition binge, is already the world’s largest shipbuilder and defense electronics maker. TRW represents Northrop’s 16th and largest acquisition.

“They are certainly one of the premiere military space companies anywhere, and Northrop wasn’t that at all before TRW,” said Paul H. Nisbet, aerospace analyst for JSA Research Inc. “They’ve now got their hand in a lot of major government programs.”

Northrop executives said the biggest gain from the TRW merger would be the added capability of developing lucrative programs such as the nation’s multibillion-dollar missile defense system.

“This is a capstone acquisition for Northrop,” Chief Executive Kent Kresa said during an interview Wednesday after presiding over a special shareholder meeting at the Fairmont Miramar Hotel in Santa Monica. Just hours earlier, TRW shareholders in Cleveland approved the deal.

Northrop will begin completing the previously announced sale of TRW’s automobile parts business to Blackstone Group, a New York private equity firm. The sale, expected to close during the first quarter of 2003, will give Northrop about $4.5 billion in cash, which will be used to help pay debt.

After all the transactions are completed, Northrop’s debt level will be about 26% of revenue, down from the high 30s, and leave the company with the “strongest balance sheet that we have had as far as I can remember,” Kresa said.

Kresa said the integration of TRW’s businesses would begin immediately with the renaming of major TRW operations. TRW Space & Electronics in Redondo Beach will become Northrop Grumman Space Technology.

Kresa and Northrop President Ronald Sugar are scheduled to address about 15,000 TRW employees Friday in Reston, Va., then fly back to Southern California to speak to about 8,600 workers in Redondo Beach. During what has been dubbed “Operation Day One,” all TRW signs will be replaced by Northrop markers.

Meanwhile, Northrop gave Cleveland a farewell present as it donated TRW’s 68-acre headquarter campus to the Cleveland Clinic, a nonprofit provider of medical services. The donation, which Northrop will write off as a gift to charity, is estimated to be worth about $60 million and represents one of the largest private gifts in the city’s history.

Northrop closed down 12 cents Wednesday at $96.50 on the New York Stock Exchange. And on its last day of trading, TRW ended down 19 cents at $51.62, also on the NYSE.