Northrop Grumman bid for TRW turns hostile

Northrop Grumman Corp. is mounting a hostile takeover of TRW Inc. after TRW's board of directors rejected its unsolicited bid to purchase the company. The company announced it is also challenging anti-merger provisions in Ohio state law that it considers discriminatory.


Cleveland-based TRW announced March 3 it had turned down Northrop Grumman's Feb. 26 offer of $47 per share, or roughly $5.9 billion for the company's outstanding stock, plus assumption of TRW's approximately $5.5 billion in debt. On March 1, TRW's stock closed at $50.05.


In a statement, TRW said Los Angeles-based Northrop Grumman's offer "grossly undervalues TRW's advanced portfolio of technology and market leadership positions in space, defense, information systems and automotive parts, and is not consistent with the board's objective of enhancing shareholder value."


"This is all about shareholder value, and the Northrop Grumman proposal does not begin to recognize the value of TRW's franchise," said Philip Odeen, TRW's chairman.


Later March 3, Northrop Grumman announced it has begun an exchange offer for all outstanding shares of TRW stock, still at the initial offer of $47 per share.


In a prepared statement, Kent Kresa, chairman and chief executive officer of Northrop Grumman, said the company is initiating steps to pursue TRW's purchase, including asking that the TRW board call the special shareholders' meeting required under Ohio law to authorize Northrop Grumman's acquisition of TRW shares.


Now that Northrop Grumman has formally notified TRW of its intent to purchase the company, TRW has 10 days to call a special shareholders' meeting, which must be held within the next 50 days, said Randy Belote, a Northrop Grumman spokesman.


The company also announced it is filing a lawsuit in Ohio challenging elements of the state's anti-takeover laws.


"The difficulty is [Ohio] law prohibits Northrop Grumman from acquiring more than 20 percent of the stock, unless the shareholders have first voted to authorize the transaction," Belote said. "[In] another part of the law we find particularly onerous, people who have acquired more than $250,000 in shares from the first announcement of Northrop's offer to the Securities and Exchange Commission record to date aren't allowed to vote at the meeting. We view that as discriminatory."


Belote said Northrop Grumman also intends to challenge two other provisions of the Ohio law. All of these laws have been challenged once before, in a lower court, he said, but the company "questions the persuasiveness" of the ruling that upholds them.


TRW responded March 4 by asking its shareholders to hold off responding to the Northrop Grumman offer until the company can make its recommendations, which it promised to deliver no later than close of business March 15.