Northrop Grumman-TRW deal creates $7 billion IT behemoth

Northrop Grumman Corp. and TRW Inc. finally concluded their months-long face-off over Northrop's unsolicited bid to purchase TRW with an agreement to merge, the two companies announced July 1.


The $7.8 billion merger will position Northrop Grumman of Los Angeles as the nation's second largest defense contractor, with projected annual revenue of more than $26 billion and approximately 123,000 employees. The No. 1 defense contractor is Lockheed Martin Corp., Bethesda, Md.


The information technology portion of the combined companies will top $7 billion.


"Today's acquisition adds the last critical node of space to our robust and well-diversified defense platform and systems capabilities that operate on the ground, at sea and in the air," said Kent Kresa, chairman and chief executive of Northrop Grumman.


Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, Northrop Grumman will acquire Cleveland-based TRW for $60 per share, making the transaction worth about $7.8 billion. This is almost 28 percent higher than Northrop Grumman's original offer price of $47 per share, which TRW rejected from the outset as too low.


After the merger is complete, Northrop Grumman plans to separate TRW's automotive business either through a sale or a spinoff to shareholders. TRW had already announced it intends to sell its Aeronautical Systems business to Goodrich Corp. for $1.5 billion, and that transaction will be unaffected by Northrop's acquisition.


TRW holds a wide range of contracts for systems engineering, technical management and sustainment services with both military and federal civilian agencies, along with spots on omnibus purchasing vehicles, such as the National Institutes of Health's Chief Information Officers Solutions and Partners II (CIO-SP 2) and the General Services Administration's Millennia Lite. The company ranked eighth on Washington Technology's Top 100 list of federal contractors, with $650.3 million in prime contract revenue during 2001.


Northrop Grumman was second on the Top 100 list, with $1.48 billion in revenue from prime IT contracts. Its works include the Army CECOM Software and Systems Engineering Support contract, worth up to $700 million over 10 years, and, in partnership with Computer Sciences Corp., the 10-year, $2 billion Groundbreaker outsourcing contract with the National Security Agency.