Accusations fly between TRW, Northrop Grumman

Northrop Grumman Corp.'s battle to acquire TRW Inc. is becoming increasingly hostile for both parties.

TRW executives, who have rejected two purchase offers from Northrop Grumman, have accused Northrop Grumman of misleading TRW's shareholders over the terms of a confidentiality agreement the two companies entered into in 1997 when they were discussing a possible merger.

TRW's April 23 press statement comes the day after Northrop Grumman of Los Angeles accused Cleveland-based TRW of trying to use the terms of a proposed, new confidentiality agreement to block any new offer from Northrop Grumman without first getting approval from the TRW board of directors.

A letter, released April 22, from W. Burks Terry, Northrop's corporate vice president and general counsel, claimed that requiring Northrop Grumman to agree in advance to abide by procedures TRW may adopt could bind the company "to a bidding process designed to 'tip the playing field' in favor of others."

TRW, on the other hand, claimed the terms of the confidentiality agreement have already been accepted by an unnamed third company, demonstrating Northrop's unreasonableness on the topic.

"We are deeply disappointed Northrop Grumman has chosen to negotiate the terms of our confidentiality agreement in the press," William Lawrence, TRW executive vice president, general counsel and secretary, said in a letter to Northrop released April 22. "TRW is prepared to provide Northrop with access to the same information it provides to other parties. ... A confidentiality agreement has already been signed by a participant who will begin receiving information shortly."

The TRW letter further stated: "Northrop has asserted that it wants to proceed with a negotiated transaction, yet has simultaneously insisted on maintaining full flexibility to pursue its hostile offer. Contrary to Northrop's protest, a standstill provision is perfectly appropriate under these circumstances."

Northrop Grumman offered Feb. 22 to acquire TRW at $47 per share. On April 15 it raised its offering price to $53 per share. After rejecting the second offer, TRW announced it would begin exploring alternatives with other companies.

One industry analyst familiar with both companies said that while TRW wants to stay independent, the fight could have been avoided if the company had followed the advice of David Cotes, the former chairman, president and chief executive officer, who left suddenly for Honeywell Inc. in February. The move depressed TRW's stock price and created the opening for Northrop Grumman's offer.

"They would have done exactly what they're doing now: split the company into two pieces," the analyst said.

Northrop Grumman has its own hurdles, however, the analyst said. Wall Street is nervous over the company's ability to integrate TRW on the heels of its acquisition of Litton Industries Inc., which was just completely integrated into Northrop Grumman a few months ago, he said.