Northrop, TRW take major step toward deal

NEW YORK, May 6 Reuters is reporting that TRW Inc. , a defense and autoparts company, on Monday ended weeks of acrimony with hostile bidder Northrop Grumman Corp. , by agreeing to share confidential information with Northrop that could result in a final takeover bid.

Northrop, whose $6.7 billion bid for TRW has been rejected by both TRW management and its shareholders, said previously that it might raise its offer if it could get a look at TRW's books.

Wall Street analysts and bankers expect both parties to agree on a deal with Northrop adding another $3 to $5 per share to its current $53 per share offer on the table. This offer was due to expire at midnight on Friday, but has been extended until May 17.

Brett Hoselton, analyst with Cleveland-based McDonald Investments said that "$55 to $58 per share will be a reasonable valuation." Northrop would also be responsible for the assumption of about $5.8 billion in TRW debt if the deal is completed.

A spokesman for Northrop said late in the day he expects the due diligence to be completed as soon as possible. "We will be as prompt as possible once we have full access to information," he said.

Northrop would aim to complete examination of TRW's books in a minimum of three weeks once it gets access to full data from TRW, sources familiar with the situation said.

As part of the confidentiality pact, Northrop has agreed to a stand-still agreement, promising it would not return with a counter bid before Sept. 30 if current negotiations fail, a source familiar with the situation said.

The length of the standstill agreement was a major bone of contention between the two sides that led to a delay in signing a confidentiality pact.

TRW initially asked for three years, while Northrop always wanted it to be less than a year.

The run-up to the confidentiality agreement was not very easy with both parties publicly exchanging bitter words. Talks between the two parties almost fell through on Saturday after they failed to work out terms of the confidentiality agreement on mutually acceptable terms, people familiar with those talks said.

But they were revived again on Sunday afternoon following a conversation between Northrop chief executive Kent Kresa and TRW chairman Philip Odeen. The pact was signed in the early hours of Monday.

TRW shares closed at $55.06, up 6 cents on the New York Stock Exchange, while Northrop shares fell $2.75, or 2.25 percent, to $119.63.

In late April, TRW announced it had signed confidentiality agreements with other interested bidders.

But there were some doubts on Monday on how serious other potential buyers were. Some analysts and investors have mentioned the names of Raytheon Co. , General Dynamics Corp. in the past have declined to comment.

Boeing Co. was considered a potential bidder in February but has decided not to bid for it and also told Northrop that it wouldn't step in, a source familiar with that communication said. Boeing declined to comment on Friday.

Lockheed Martin Corp. is also considered a contender, but analysts say it would have to sell some businesses in order to get a deal approved by the U.S. Pentagon. Lockheed has also declined comment in the past on the speculation.

Northrop is primarily interested in TRW's defense assets, including its satellite-making unit and its laser antimissile programs. Northrop also wants its information technology unit but said it would sell off the autoparts business.

If Northrop succeeds in buying the company it would spin off TRW's auto parts business and sell its aeronauticals operations.

On Friday, TRW shareholders voted down a proposal to allow Los Angeles-based Northrop to proceed with its $6.7 billion bid by purchasing up to 20 percent of TRW's outstanding shares.