TRW in talks on outright sale of auto parts unit

NEW YORK, Aug 27 Reuters reported that TRW Inc is in final stages of negotiations to sell its auto parts unit outright to two financial buyout firms, Carlyle Group and Blackstone Group, for about $5.0 billion, sources familiar with the talks said on Tuesday.

The two private equity firms had earlier been in talks with TRW to buy up to 20 percent in the business while the balance would have been floated on the New York Stock Exchange.

But negotiations for an outright purchase heated up after Northrop Grumman Corp clinched its deal to buy TRW. Northrop is buying TRW because it wants TRW's defense operations.

Both Carlyle and Blackstone are expected to jointly own the business equally and a deal could be announced as early as this week, sources familiar with the situation said. However, they warn that the talks could still either continue throughout the weekend or could even fall through.

Both Carlyle and TRW declined to comment on the talks. Blackstone could not be immediately reached. Northrop also declined to comment.

If the deal works out it would be another mega deal for the private equity industry which has billions of dollars to spend at a time when corporate valuations on the stock market are down.

Some top private equity players including Blackstone, Carlyle, Kohlberg Kravis Roberts and Bain Capital have been looking at some 'old economy' sectors like auto parts, chemicals, energy, engineering where these firms can strip off unnecessary costs and get hold of a steady stream of cash flow.

Two weeks ago, Carlyle and another private equity firm Welsh, Carson, Anderson & Stowe paid $7.05 billion for QwestDex, the phone book unit of Qwest Communications International Inc.

Industry analysts welcomed the prospects of an outright sale of the unit, saying it was positive for Northrop Grumman because it would reduce the earnings dilution that Northrop was meant to incur following the TRW deal.

"Such a sale would also greatly reduce the execution risk that would have been involved with Northrop Grumman spinning off the automotive unit," Chris Mecray, an analyst with Deutsche Bank Securities Inc, wrote in a note on Tuesday.

Northrop shares were up about 4 percent to $123.90 on the New York Stock Exchange at 1230 p.m.

With around $10 billion in revenues, a stand-alone TRW auto parts business would rank among the top 10 suppliers based on annual revenue, Richard Hilgert, automotive industry analyst with Fahnestock & Co said.

TRW is a leading producer of steering systems, brakes, air bags, seat belts and engine components.

-- Susan Kelly in Chicago, Arindam Nag and Dane Hamilton in New York --