Feds intervene in shipyard merger
By Nick P. DiVito
Associated Press
RICHMOND, Va. — Northrop Grumman Corp. has maintained since May that General Dynamics Inc.'s multibillion-dollar bid to buy the nation's largest private shipyard could eliminate competition and endanger national security.
The Los Angeles-based company was vindicated yesterday when two federal agencies stepped in: The Pentagon blessed Northrop's effort to acquire Newport News Shipbuilding Inc., and the Justice Department sued to block the competing bid from General Dynamics Corp.
"Northrop Grumman is pleased with the Department of Defense statement ... which allows us to go forward with our proposed acquisition of Newport News," Northrop said in a statement yesterday.
The Justice Department said a merger between the Newport News, Va.-based shipbuilder and General Dynamics would result in a monopoly for building nuclear submarines, a weapon vital to national security.
The department also said the proposed acquisition would harm competition for other military ships and the development of technology for powering nuclear submarines.
"This merger would give General Dynamics a permanent monopoly in nuclear submarines and would substantially lessen competition in the surface combatants," said Charles James, assistant attorney general in charge of the antitrust division.
The Pentagon cited concerns about the transaction and worked with the Justice Department in an investigation that led to the lawsuit.
General Dynamics, based in Falls Church, Va., offered $2.1 billion in cash for the shipyard. Northrop Grumman, General Dynamics' main competitor for Navy shipbuilding contracts, offered to buy Newport News for a combination of cash and stock originally worth $2.1 billion.
General Dynamics and Newport News are the nation's only nuclear submarine builders.
Newport News Shipbuilding executives have said they preferred General Dynamics' offer, although the Northrop Grumman proposal increased in value because Northrop's stock has risen in the wake of the Sept. 11 terrorist attacks.
But officials at both companies were mum yesterday.
"Discussions with Northrop Grumman are ongoing," said Newport News spokeswoman Jerri Fuller Dicksecki. "Beyond that, we don't have a timetable or any other details to discuss."
General Dynamics spokesman Kendall Pease declined to comment.
Northrop made its bid to buy the shipyard two weeks after General Dynamics made its offer on April 25.
Analysts have suspected the move was a defensive one to protect Northrop's investment in Litton Industries rather than a desire to own the company.
Northrop bought the defense electronics and shipbuilder earlier this year for $3.8 billion, including the assumption of $1.3 billion in debt.
"I suspect the concerted effort by Northrop Grumman to persuade the Justice Department this was a monopoly situation that would kill Litton over the long term bore fruit and they in turn went to the Defense Department," Paul Nisbet, an analyst at JSA Research Inc., said yesterday.
Los Angeles-based Northrop Grumman took its offer to shareholders after the Newport News board voted in favor of the General Dynamics bid. Both companies have been renewing their tender offers for months.
Shares of all three companies on the New York Stock Exchange dropped yesterday. Newport News fell 73 cents to close at $69.11, but gained 9 cents in extended trading, while Northrop Grumman was down $5.50 to close at $100, a drop of 5.2 percent.
In extended trading, Northrop Grumman shares were down another 15 cents.
Shares of General Dynamics were down $3.04 to close at $81.76, or 3.5 percent, and were down another 9 cents in extended trading.
