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Pentagon against shipyard bid
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May 28, 1999: 3:57 p.m. ET
Defense Sec'y Cohen says Litton-Newport News link anti-competitive
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NEW YORK (CNNfn) - The Pentagon opposes Litton Industries Inc.'s proposed $1.8 billion takeover of Newport News Shipbuilding Inc. because it would slash competition in U.S. military shipbuilding, Defense Secretary William Cohen said Friday.
When asked about concerns over the Litton-Newport News deal, Cohen said they were "the same kind of considerations that were involved with [General Dynamics Corp.'s proposed takeover of Newport News] -- namely the concentration of power and the anti-competitive aspects of it.
"That kind of concentration would be contrary to our interests in maintaining separate facilities in shipbuilding."
General Dynamics Corp. (GD), with which Litton is trying to compete by creating a defense powerhouse, withdrew its $1.95 billion offer for Newport News last month after the Pentagon opposed the deal.
Cohen said the Navy had reached its conclusion about the Litton proposal in a preliminary study and informed concerned companies this week. No formal decision had been made, he added, but "I think that, in this case, it probably is" the final word on the deal.
The Justice Department normally awaits a recommendation from the Pentagon in matters involving defense mergers. But Cohen's comments to reporters appeared to be the death-knell for the merger unless something unforeseen emerges. The Justice Department, which has the ultimate say on mergers, had no comment.
Navy officials told Reuters if the Litton-Newport News merger were approved, the U.S. military would essentially be going from three to two competitors for most classes of Navy ships.
The Navy is also concerned that if Litton (LIT) acquires the Virginia shipyard, hundreds of millions of dollars in cost savings that the Defense Department had arranged with Newport News (NNS) could be in jeopardy, a Navy official told CNNfn. The official, who declined to be named, said the Navy wants to see taxpayers reap the benefits of savings from previous mergers before the industry further consolidates.
"The feeling is that the level of merger activity needs to stabilize" and the industry needs to "focus on the business of becoming more efficient," the official said.
Shares in Newport News were hit hard on Friday, down 5-7/8 at 26-7/8 in mid-afternoon trading.
Cohen: Avondale proposal OK
Earlier this month, Litton launched a pair of bids for Newport News and Avondale Industries Inc. (AVDL), which Newport News had earlier announced it would purchase.
Cohen said that the Navy and the Pentagon did not oppose Litton's $500 million cash offer to buy Louisiana shipbuilder Avondale Industries Inc. The government earlier this year also cleared the way for Newport News to buy Avondale although that deal has not been completed.
A spokesman for Litton said that talks would continue with Avondale.
"We continue our discussions with Avondale," said Randy Belote at Litton's Arlington, Va., offices in suburban Washington. "We want to reach a final agreement on that."
Newport News has offered $470 million in stock for Avondale, as opposed to the richer cash offer from Litton.
Litton's Belote and a spokesman for Newport News declined to comment on the possibility of a bidding war between Litton and Newport News for Avondale. A spokesman for Avondale was also noncommittal.
"Avondale is still studying both merger proposals and the company has not yet determined if one is better than the other for Avondale," said Ed Winter at the company's New Orleans headquarters.
Belote said that Litton would try to resolve the concerns of the Navy, and insisted that his firm's acquisition of both Newport News and Avondale would be good for the Navy.
In its proposed stock deal for Newport News, Litton would give Newport News shareholders 0.55 share of Litton stock for every Newport share they own, valuing the shipbuilder at $35 a share.
Newport News is the main supplier of nuclear powered aircraft carriers for the Navy. The company employs 18,000 and has annual revenue of approximately $1.8 billion.
Litton is a defense contractor providing navigation, guidance and control systems, marine electronics, and electronic warfare systems. Shares in the company were up 2-11/16 at 65-7/16 Thursday. 
-- from staff and wire reports
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