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Litton drops Newport bid
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July 9, 1999: 1:52 p.m. ET
Says buyout offer for shipbuilder unlikely to get government approval
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NEW YORK (CNNfn) - Litton Industries Inc. Friday dropped its $1.8 billion unsolicited offer to take over Newport News Shipbuilding in the face of Pentagon opposition to the deal.
Litton CEO Michael R. Brown said the offer would have benefited both companies and created cost savings for the Navy, but "it is evident that our proposed transaction is unlikely to receive the necessary government approvals at this time.
"Although we are disappointed by this outcome, we respectfully withdraw our proposal," Brown said in a statement.
Virginia-based Newport News is the only supplier of nuclear powered aircraft carriers for the Navy. Litton, a defense contractor based in Woodland Hills, Calif., is a major supplier of Navy combat ships. The company wanted to acquire Newport News to better compete with powerful rival General Dynamics Corp. (GD).
The news did not come as a surprise. Soon after Litton bid for Newport News on May 5, Defense Secretary William Cohen said that after an informal review, the Pentagon opposed the proposal out of concern that the industry was consolidating too rapidly and the deal could stifle competition.
Pentagon officials said they wanted to see the promised savings from previous mergers before the industry further consolidates. The Justice Department would have had the ultimate decision on whether the bid could go forward.
Litton's abandonment of its offer follows a similar move earlier this year by General Dynamics, which dropped a $1.95 billion offer for Newport News because of Pentagon opposition.
Newport News spokesman Mike Hatfield said the company had been expecting that the Litton bid would die.
"It appeared that this would eventually be the outcome," Hatfield said. "We will continue to go ahead with our plan to continue to be an independent company."
Also Friday, Litton said it expects its parallel bid for New Orleans-based Avondale Industries Inc. (AVDL), worth $500 million, to successfully close soon after an Avondale shareholders meeting July 27. Newport News had initially tried to buy Avondale for about $470 million in stock, but Litton topped that offer with its all-cash bid.
The Pentagon did not oppose the Litton-Avondale partnership.
Shares in Litton (LIT) lost 1-1/8 to 71-5/16 by early Friday afternoon. Linda Varoli, an analyst at Merger Insight, attributed the weak performance to a general downturn in the sector for the day, saying investors already had priced the news into both Litton and Newport News stock. Newport News (NNS) dropped 3/8 to 30-5/8.
"The announcement was kind of a non-event," Varoli said. Litton had been "just kind of hanging in there." 
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