Northrop Grumman to Discard Auto Business if It Can Buy Ohio-Based TRW

AP reported that, the automotive business of Ohio-based TRW Inc. typically makes up most of its sales and profits. However, as far as bidder Northrop Grumman Corp. is concerned, the real prize would be something much smaller -- TRW's aerospace and information systems business.

The defense giant on Friday offered to buy TRW for $5.9 billion in stock and said that if successful it would separate the auto business from the rest of the company.

``We recognize that the automotive business is an outstanding operation in its own right, but we believe that it does not logically fit with your or our other business segments,'' Northrop chairman and chief executive Kent Kresa said in a letter to TRW officials explaining the unsolicited proposal.

On its Web site, TRW says it is one of the world's 10 largest suppliers of auto parts and makes parts for more than 40 automakers. Its products include chassis, brake parts and air bag systems.

TRW's competitors include American companies Delphi Automotive Systems and Breed Technologies and foreign operations such as German-based Robert Bosch BmbH, Japanese-based Takata and Swedish company Autoliv, according to analysts.

Of TRW's $16.4 billion in sales last year, 62 percent, or $10.1 billion, came from automotive segment. The company reported that it made $469 million from its automotive business before one-time expenses, 52 percent of its total profits.

About half of the Cleveland-based company's 94,000 employees work in its automotive business.

Analysts say the automotive segment is not as valuable as the other parts of TRW's business in part because of current weakness in the auto industry. For that reason, they believe if Los Angeles-based Northrop buys TRW, it likely will spin off the auto business instead of trying to sell it.

Ken Blaschke, automotive analyst in Chicago with Deutsch Banc Alex. Brown, said it would be hard to get a reasonable price for the automotive business, especially because $20 billion worth of the auto parts businesses is already for sale as TRW tries to reduce its debt load.

Andrew Casey, senior analyst with Prudential Securities in San Francisco, said antitrust concerns also could keep the big players from making a bid.

More consolidation is expected within the industry and as weak auto sales continue to hurt the business, Blashke said.

``The cost-cutting effort must continue for any supplier to be successful,'' he said.

TRW said it in most recent quarterly report that it has cut 3,000 salaried positions in its automotive business that will save $150 million a year.

It is among several parts suppliers to eliminate jobs.

Toledo-based Dana Corp. has said it will cut 15 percent of its work force and close or consolidate more than 30 plants because of slowing demand for its parts. Visteon Corp. announced earlier this month that it plans to eliminate 1,600 jobs.