Salomon Smith Barney News

Northrop Grumman Corporation and Newport News Shipbuilding Inc. announced today that they have signed a definitive agreement under which Northrop Grumman will acquire Newport News Shipbuilding. The boards of directors of both companies approved the terms of the transaction in which Northrop Grumman will acquire all the outstanding shares of Newport News. $67.50, subject to certain limitations and proration procedures. Northrop Grumman expects to promptly amend its existing offer documents in order to reflect the merger agreement. Shipbuilding shareholders will have the same right to elect to receive cash or shares of Northrop Grumman stock as described above. Kent Kresa, Northrop Grumman chairman and chief executive officer.

P&O Princess Cruises plc and Royal Caribbean Cruises Ltd. have agreed to merge their companies in a deal approaching $6 billion, a move that will effectively create the world's largest cruise vacation group. The merger, spurred by an already softening economy and the September 11 terrorist attacks that have left cruise companies, among other transportation operators, grappling to fill ships, involves two companies with an aggregate revenue of more than $5 billion in the 12 months preceding September 30, 2001. The new company, which will pose a serious threat to Carnival Corp. - to now the world's largest cruise shipping organization - will commandeer 41 ships and some 75,000 berths, with another 14 ships and 30,000 berths coming on line in the next three years.

Northrop Grumman Corporation today announced the public offerings of 8 million shares of common stock at $88.50 per share and 6 million equity security units at $100 per unit with a 7.25 percent coupon and a 22 percent conversion premium. purchase up to an additional 900,000 equity security units to cover over-allotments, if any. Each equity security unit will initially consist of a contract to purchase shares of Northrop Grumman common stock on Nov. 16, 2004 and a $100 senior note due 2006. The offerings were priced yesterday and are expected to close on Nov. 21, 2001. Net proceeds from the sale of both common and equity security units are expected to be approximately $1.3 billion, assuming the over-allotment options are not exercised. general corporate purposes.

The Board of P&O Princess states that, at the end of last week, Carnival conveyed its interest in a possible transaction with P&O Princess. Carnival's proposal is subject to several pre-conditions including regulatory approval and financing. After consider Carnival's proposal and reviewed it with its financial and legal advisors. Based on this review, the board has concluded that the proposed dual listed company transaction with Royal Caribbean remains the most attractive alternative for P&O Princess shareholders. The board believes, and has been advised, that the Carnival proposal is not as favorable financially to P&O Princess shareholders and would face greater execution risk than the transaction with Royal Caribbean.

Salomon Smith Barney reportedly predicted second quarter 1999 earnings for U.S. major oil companies will be almost double earnings seen in the first quarter of 1999.

According to Salomon Smith Barney's mid-year weather outlook, the La Nina weather pattern stands to increase the number of hurricanes in the Gulf of Mexico this season and energy operations in the area must be monitored closely for any disruptions the storms may inflict,.

Chiles Offshore LLC, the 55-percent owned unit of offshore oil exploration company Seacor Smit Inc., has filed for an initial public offering of 8 million common shares in a range of $17-$19 each. Chiles owns and operates ultra-premium jack-up drilling rigs -- mobile offshore drilling platforms with legs that lower to the ocean floor to support the platform while drilling. Ultra-premium rigs differ from other drilling rigs because of their greater depth capabilities and more powerful mud pumps that speed up well drilling. According to papers filed with the Securities and Exchange Commission, the Houston-based firm has applied for an American Stock Exchange listing. A ticker symbol will be disclosed later.

The Gulf of Mexico offshore market is quickly shaping up to be the driving maritime force of 2001 and beyond. While the market today is, and will always be, largely dependent on the political wranglings of OPEC nations, the recent consolidation which has swept the oil majors and, to some degree, the offshore drilling and supply and service companies, has helped to alter some of the traditional instabilities. For example, despite the fact that the price per barrel of oil has elevated to and remained in the mid $20s to low $30s for much of the year, offshore activity in the Gulf of Mexico has been sluggish to initially respond. While it appears that offshore business in the region will rebound strongly in the latter part of 2000 through 2001…

U.S. investment bank Salomon Smith Barney downgraded Taiwan's Evergreen Marine Corp. to underperform from neutral and Yang Ming Marine Transport Corp. to underperform from outperform. Salomon, in a September 19 research note seen by Reuters on Thursday, said it was lowering earnings expectations and ratings for Evergreen and Yang Ming. Salomon set a T$16 target price for Evergreen, the world's largest shipping company, and T$10 for Yang Ming, Taiwan's second largest shipping firm. On Thursday, Evergreen shares ended up T$0.3 at T$18.6, Yang Ming shares were up T$0.3 at T$12.4. Salomon said the main weakness for Evergreen, the flagship of the Evergreen Group, lies in its complex organization, while Yang Ming's core earnings are a major concern.

Uncontrollable external forces driving commercial development is the hallmark of any industry. However, the last three years serve as a prime example of how such forces can significantly affect the maritime realm. When the reality of an Asian financial collapse hit in late 1997 and the price per barrel of oil eventually dove to $10, the thought of a $30+ barrel by 2000 seemed ludicrous. But, just as world political and market forces help to drag markets down, they inevitably turn and help to push them up again. Today’s reality is a low to mid-$30 per barrel of oil, as tensions in the Middle East, OPEC and low product stocks continue to buoy the barrel. With concerns of an energy crisis in the U.S.

The booming global deepwater oil industry is on course to outpace supply of offshore development hardware in the next two years, according to an analysts' report. "Deepwater construction capacity will be insufficient to handle anticipated demand requirements in 2002 and particularly 2003-04," said an oilfield and equipment services report by Schroder Salomon Smith Barney. "We believe a rush of field development plans will be sanctioned in 2001, followed by major contract awards to marine contractors," it added. With oil prices having tripled in 18 months, companies are loosening constraints on exploration and development spending imposed during a price slump in 1998 and early 1999. But a backlog of potential developments could grow as limits emerge to equipment supply.

In a move which effectively creates a defense and marine naval construction giant, Northrop Grumman Corp. and Litton Industries jointly announced late last month that they have signed a definitive agreement under which Northrop Grumman will acquire for cash all of the outstanding shares of Litton for $80 per common share and $35 per Series B Preferred share. The transaction is valued at approximately $5.1 billion, which includes the assumption of Litton's $1.3 billion in net debt. Litton is a leading supplier of advanced electronics and information systems to the U.S. government and international customers and is the premier designer and builder of non-nuclear surface combatant ships for U.S. and foreign navies.

It appears that the long-held promise of deepwater offshore discovery and recovery is well-positioned to pay off, particularly in the face of $30+ barrels of oil. As technology has increasingly allowed oil companies and offshore drilling firms to more accurately find and evaluate potential drilling hot spots, there has been a fervor for the development of deepwater drilling equipment and design of offshore supply vessels to support the operation. The booming global deepwater oil industry is on course to outpace supply of offshore development hardware in the next two years, according to an analysts' report, as reported in the October 30 edition of Maritime Week, sister-publication to Maritime Reporter & Engineering News.

Despite the uncertainty of new government policy, the defense industry presents a picture of renewed growth, boosted by higher spending and technology funding under the George W. Bush administration. Makers of the nation's warfare technologies along with Wall Street analysts and industry consultants spent a week bragging about new opportunities and the likelihood of changes to Pentagon policy that would foster growth after 15 years of strained budgets. What's more, defense and aerospace stocks ended on a high note, climbing amid a broad market slump as 24 U.S. and British warplanes struck Iraqi military targets using various long-range, precision-guided weapons.

The lure of higher oil and gas prices has pushed the number of rigs exploring for oil and natural gas in the United States to a 10-year high, stretching the drilling industry close to its limits. The domestic rig count reached 1,163 during the week ending March 23 - the highest number since December 10, 1990 - when 1,179 rigs were in use, according to oil services firm Baker Hughes Inc. Spurred by record gas prices and the biggest oil market boom for two decades, independent U.S. energy companies are putting their record revenues back into extra drilling, but are finding it increasingly difficult to staff the growing number of rigs. Unlike 10 years ago, exploration for natural gas has eclipsed that for oil, and analysts say the increase in rig use this year has not yet peaked.

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.

Shares of Neptune Orient Lines (NOL) fell almost seven percent in heavy trade last Thursday on talk there was some re-rating of the stock following changes in the MSCi index. The shipping group was down 15 cents or six percent at S$2.28 after hitting a low of S$2.26 earlier. Volume was a heavy 12.19 million shares. NOL had lost 10 percent of its value since the start of last week where it stood at S$2.54. "The selling has been very heavy since the start of the week. There is also an earnings downgrade by houses like Salomon Smith Barney," a broker said. A few houses have been downgrading the stock on concerns over higher bunker charges, but some analysts said it might be too early to state the actual impact on NOL.

The boom in U.S. onshore oil and natural gas drilling has yet to peak, bolstering forecasts of continued strong demand for rigs, analysts and executives said this week. But growth in the onshore rig market is likely to slow down next year, and activity in the offshore market is already tailing off, with some companies sending rigs away from the Gulf of Mexico to other countries where profits may be better. "We expect to see 30 to 33 percent growth in the total U.S. rig count this year over 2000," an analyst said. "The problem is, we'll only see 8 percent growth from 2001 to 2002, and then companies will have to add units," the analyst added, noting that the 2001 rig count increased 49 percent from 1999 to 2001.

The strong and sustained rebound in the price per barrel of oil, coupled with the economic recovery in Asia has offshore production related companies planning for a big 2000. Following is a synopsis of a report generated by Washington, D.C.-based International Maritime Associates Inc. which assesses the market outlook for FPSO vessels, production semis, TLPs and spars. There are currently 107 floating production systems in operation worldwide, which is an increase of nearly 67 percent over the inventory reported in International Maritime Associates' report dated September 1996. In real terms, the increase means the addition of 49 units, broken down as such: 3 TLPs, 2 mini TLPs, 33 FPSO vessels, 9 production semis and 2 production spars.

Oil importers last week were facing the prospect of a severe winter price spike as OPEC exporters prepared to turn the screw on stringent supply restrictions. Benchmark Brent crude in London struck new 31-month highs last week at $22.30 barrel -- another 32 cent rise on top of Tuesday's 60 cent jump which took prices above $22 for the first time since February 1997. "As long as key producers give no hint of relaxing output restraint the price of Brent will probably approach $25 in the fourth quarter," said Mike Barry of London's Energy Market Consultants. "The latest price rise is certainly a vote of confidence in OPEC compliance with its output cuts," said Peter Gignoux, head of the London energy desk at brokers Salomon Smith Barney.

The course of corporate consolidation within the already tight offshore business took a dramatic turn over the holiday weekend, as Global Marine Inc. and Santa Fe International Corporation entered into a definitive agreement to merge in a stock-for-stock transaction that will create the world's second largest offshore drilling contractor. The new company, which will be named GlobalSantaFe Corporation, will be headquartered in Houston and will trade on the New York Stock Exchange under the ticker symbol "GSF". Based on Santa Fe's closing stock price on Friday, August 31, GlobalSantaFe would have a market value of approximately $6 billion.

Hyundai Heavy Industries, the world's largest shipbuilder, sees a strong earnings recovery after cleaning up the last of its soured investments in sister firms, a company executive said on Thursday. The South Korean company expects to have to write off most of its equity investment in ailing Hynix Semiconductor, formerly Hyundai Electronics, in either 2002 or 2003. "It seems our stake in Hynix has soured," Suh Tae-hwan, a senior vice president in charge of finance affairs, said in an interview with Reuters. Hyundai Heavy built up a 7.01 percent stake in Hynix for 592 billion won. But after the global chip depression that stake is now worth only about 57 billion won ($44.7 million).

Crude oil tanker owner and operator American Eagle Tankers Inc. Ltd. has filed for an initial public offering that could raise up to $132 million for the unit of Singapore's Neptune Orient Lines Ltd. American Eagle, which is based in Jersey City, N.J., plans to use the net proceeds from the IPO to expand its fleet of tankers, which currently numbers 24, it said on Tuesday in a filing with the U.S. Securities and Exchange Commission. The company is selling 6.75 million common shares for between $17.60 and $19.50 apiece, which would give it a potential market value of $495 million based on the high end of the price range and about 25 million shares outstanding.