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Litton launches twin bids
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May 6, 1999: 9:37 p.m. ET
Defense contractor offers $2.4 billion for Newport News and Avondale
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NEW YORK (CNNfn) - Defense contractor Litton Industries launched a pair of unsolicited takeover bids for Newport News Shipbuilding and Avondale Industries Inc. Thursday in yet another sign of consolidation in the defense sector.
The offers, which total nearly $2.4 billion, were disclosed in separate letters to William Fricks, chairman and chief executive officer of Newport News Shipbuilding, and Albert Bossier, chairman and chief executive officer and president of Avondale.
Litton's proposed takeover of the companies would allow the Woodland Hills, Calif.-based contractor to create a marine defense powerhouse to compete with General Dynamics Corp.
Last month, General Dynamics withdrew its $1.95 billion for Newport after the Pentagon opposed the deal. The decision cleared the way for Newport to proceed with its previously-announced acquisition of Avondale.
Terms of the deal
Under terms of the proposed deal, Litton (LIT) would acquire Avondale Industries (AVDL) for $38 a share in cash, a premium of 19.7 percent to Thursday's closing price. Based on Avondale's 13.25 million shares outstanding, the deal is worth about $503 million.
At the same time, Litton is proposing to acquire Newport News in a stock deal that would give Newport shareholders 0.55 share of Litton stock for every Newport share they own. The offer for Newport (NNS) values the Virginia-based shipbuilder at $35 a share, representing a premium of 29 percent to Thursday's closing price. Including debt, the Newport offer is worth about $1.9 billion.
Newport previously announced an agreement for an all-stock merger with Avondale, in which Avondale shareholders would receive Newport stock. That merger has already received antitrust clearance from the Department of Justice.
Newport reviewing the offer
In a statement, Newport said it's board has authorized preliminary discussions with Litton Industries to evaluate the offer.
However, the company warned "there can be no assurance that any transaction proposed by Litton will be acceptable to our board."
In a separate statement, Avondale's Bossier said the company is also reviewing the offers.
"We acknowledge receipt of these two proposals," he said. "Under our merger agreement with Newport News, we are not permitted to enter into a transaction with Litton unless we have determined, among other things, that the proposal is superior. We have under review the proposal addressed to Avondale and expect to have further comment when our review is complete."
Newport designs and constructs nuclear powered aircraft carriers and submarines for the U.S. Navy and provides life cycle maintenance services for ships in the Navy fleet. The company employs 18,000 people and has annual revenues of approximately $1.8 billion.
Avondale designs, builds and overhauls both military and commercial vessels.
Litton provides navigation, guidance, and control systems; marine electronics; and electronic warfare systems.
The defense industry has been going through a lengthy period of consolidation in the face of smaller and smaller defense budgets in the United States. At first, the Pentagon supported the consolidation on the grounds that larger contractors would have the financial muscle to compete with international rivals.
However, the Defense Department has recently started to oppose some proposed deals, including the General Dynamics bid for Newport and Lockheed's failed $12 billion bid for Northrop Grumman Corp.
In Litton's letter to Newport, dated May 5, Brown said the combination of Litton's Ingall's shipbuilding business with Newport would create a "world-class leader in shipbuilding."
"This combination would create a strong, full-service U.S. shipbuilder with the scale and scope to compete for all shipbuilding programs," Brown said.
Litton shares closed Thursday at 64-3/4, up 3/16 while Newport gained 1/8 to 27 and Avondale slipped 3/8 to 31-3/4.
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