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May 9, 2001
Northrop Grumman makes counterbid for NNS
It cited concerns that the merger agreed between Newport News and General Dynamics Corporation would create "an unhealthy monopoly, resulting in an unacceptable and anticompetitive consolidation of the U.S. shipbuilding industry."
The Northrop Grumman board has authorized management to match General Dynamics' offer of $67.50 per share for all the outstanding shares of common stock of Newport News, payable 75 percent in Northrop Grumman stock, the remainder in cash.
General Dynamics offer is all cash.
Northrop Grumman said it expects to commence an exchange offer shortly, subject to customary conditions.
In a letter to Newport News chairman and CEO William P. Fricks, Northrop Grumman chairman, president and CEO Kent Kresa said that he believes that a "combination of Newport News and Northrop Grumman (which recently purchased shipbuilder Litton Industries) would offer a variety of strategic benefits, including significant cost savings to the U.S. Navy and the opportunity for Newport News employees to become a part of a larger, more diversified company. In contrast to General Dynamics' offer, the product portfolios of Northrop Grumman and Newport News in no way overlap, provide opportunities for efficiencies, and the combination of our two companies would preserve the current competitive landscape of the military shipbuilding industry."
Kresa also said that the "proposed transaction with General Dynamics raises serious antitrust issues" and, that if permitted to proceed, "would leave the nation vulnerable with only one nuclear capable submarine and ship builder."
Kresa also cited a 1999 Department of Defense analysis that indicated that "over 75 percent of the total shipyard engineering talent and over 95 percent of the Navy R&D investment would exist in a combined General Dynamics-Newport News entity."
"Nothing has changed since that analysis," he added. "This would be an unacceptable position for the U.S. government, the Navy and for Northrop Grumman."
"We believe, and we believe that many already agree," said Kresa, "that there is enormous national security value for America in maintaining, not eliminating, opportunities for competition between General Dynamics and Newport News. In short, we believe the General Dynamics-Newport combination would endanger national security and be costly to both the Navy and the American taxpayer."
"The board of Newport News," said Kresa, "has a fiduciary responsibility to seriously consider our offer, as we believe it provides superior overall value and greater certainty of completion than the current merger agreement with General Dynamics."
Northrop Grumman said its cash and stock offer is fully financed. Kresa said that he would seek a meeting with Fricks and Newport News' board of directors to discuss Northrop Grumman's offer.
Northrop Grumman Corporation is a $15 billion global aerospace and defense company with its worldwide headquarters in Los Angeles. Northrop Grumman provides technologically advanced, innovative products, services and solutions in defense and commercial electronics, systems integration, information technology and non-nuclear shipbuilding and systems.