Northrop Grumman Corporation and TRW Inc. jointly announced that they have entered into a definitive merger
agreement. The combination will position Northrop Grumman as the nation's second largest defense contractor with projected annual revenues of more than $26 billion and approximately 123,000 employees. Following the separation of TRW's automotive business and completion of the sale of TRW's Aeronautical Systems business, Northrop Grumman will be a Fortune 100 company.
Under the terms of the agreement, unanimously approved by the boards of directors of both companies, Northrop Grumman will acquire TRW for $60 per share in common stock in a transaction valued at approximately $7.8 billion, plus the assumption of TRW's net debt at the time of closing.
The exact exchange ratio will be determined by dividing $60 by the average of the reported closing sale prices per share of Northrop Grumman common stock on the New York Stock Exchange for the five consecutive trading days ending on and including the second trading day prior to the closing of the merger. The exchange ratio will not be less than 0.4348 or more than 0.5357 of a Northrop Grumman share.
After completion of the merger, Northrop Grumman plans to separate TRW's automotive business, either through a sale or a spin-off of the business to shareholders. TRW's previously announced agreement to sell its Aeronautical Systems business to Goodrich Corporation for $1.5 billion will remain unaffected by today's announcement.
Kent Kresa, chairman and chief executive officer of Northrop Grumman, said, "Today is a great day for Northrop Grumman and TRW. We're bringing together the superior technology and outstanding talent of two of our nation's premier defense companies, creating a powerful and highly competitive enterprise with excellent growth prospects. 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. We believe this transaction provides tremendous value to our shareholders, employees and customers.
"When we first proposed to acquire TRW, we stated that we were prepared to pay full and fair value for the company, subject to a comprehensive due diligence process. Our thorough due diligence made clear to us the strength and value of TRW's operations and the tremendous opportunities for the combined defense enterprise," said Kresa.
"The talents and creative energies of TRW's defense industry employees are among the company's greatest strengths and we look forward to welcoming them to the Northrop Grumman family. Following the completion of the transaction, we will seamlessly transition the defense businesses into the company as was done recently with Litton and Newport News," concluded Kresa.
Philip A. Odeen, chairman of TRW, said, "This is a real win for TRW shareholders. For the past several months, TRW's board has undertaken a comprehensive strategic review with the sole objective of enhancing shareholder value. This transaction achieves that objective. We have said from the start that this was all about shareholder value and this transaction delivers to our shareholders full value from their TRW investment. In addition to receiving a premium on their investment, TRW shareholders also have the opportunity to participate in the upside potential created by the combination of these two great businesses. Together, our companies will create a true industry powerhouse with an unparalleled portfolio of premier technologies, expertise and capabilities."
Northrop Grumman Confirms 2002 Guidance; Provides 2003 Guidance In addition to confirming 2002 economic earnings per share guidance of $6.60 to $7.10, Northrop Grumman said that with the acquisition of TRW, the company expects 2003 economic earnings to be in the range of $7.75 to $8.30 per share and GAAP earnings of $6.00 to $6.55 per share, with double-digit growth again expected in both economic and GAAP earnings in 2004. Prior to the B-2 related tax payment, the company expects cash from operations in 2003 to be approximately $1.25 billion, and to average well over $2 billion per year for the next several years thereafter. Including the effects of this transaction and the company's B-2 program tax payment, Northrop Grumman expects to have a debt to capitalization ratio at year-end 2003 near or below the low end of its 30 percent to 40 percent target range.
Following the close of the transaction, TRW's defense business, similar to the Litton and Newport News businesses, will be initially operated as a separate Northrop Grumman sector, reporting to the office of the chairman. Northrop Grumman will work to quickly integrate the operations of TRW's defense business operations. Northrop Grumman foresees little change in employment levels in the defense business as a result of this transaction.
The transaction is subject to the approval of shareholders of both companies and to review under the Hart-Scott-Rodino Act as well as other governmental and regulatory agencies in the U.S. and Europe. The companies expect to complete the transaction in the fourth quarter of 2002.
As a result of the definitive merger agreement, Northrop Grumman did not extend its exchange offer
for all outstanding shares of common and preferred stock of TRW Inc., which expired at midnight EDT on Friday June 28, 2002, and will not accept any shares tendered. Northrop Grumman expects to amend its current Form S-4 registration statement shortly
Salomon Smith Barney and Stephens Financial Group acted as financial advisors to Northrop Grumman. Goldman, Sachs & Co and Credit Suisse First Boston advised TRW.