NEW YORK (CNN/Money) - Northrop Grumman Corp. agreed to acquire TRW Inc. in a $7.8 billion stock deal Monday, completing months of difficult negotiations for a once reluctant target.

Terms call for Northrop to pay stock worth $60 a share for TRW (TRW: Research, Estimates), representing about a 5 percent premium over TRW's closing price Friday of $56.98, which was up 36 cents. But the price is about 28 percent higher than Northrop's original offer for TRW, and it secures a smaller company, as TRW has since agreed to sell its aeronautical systems business to Goodrich Corp. (GR: Research, Estimates) for $1.5 billion. That deal is unaffected by Northrop's agreement announced Monday.

The exchange ratio of Northrop stock for TRW stock will be based on the average Northrop share price in the five days before the closing of the deal, with the ratio to be no lower than 0.4348 share for each TRW share and no greater than 0.5357 share for each TRW share. Northrop (NOC: Research, Estimates) shares fell $2.82, or 2.2 percent, to $125 Friday.

The companies expect to close the deal in the fourth quarter, after which Northrop expects to sell or spin off to shareholders TRW's auto-parts business.

"On behalf of the entire senior management team, today is an exciting historic day for Northrop Grumman," Kresa said.

The deal caps months of negotiations for Northrop, which has been trying to buy TRW since February, when it first made an unsolicited bid of $47 a share. That offer turned into a hostile bid when TRW rejected the deal. Northrop raised its bid to about $6.7 billion in April, only to have TRW shareholders reject the offer, following the TRW board's advice. Following that rejection, Northrop finally signed a confidentiality agreement to gain access to the TRW books to consider making a higher bid.

News of the merger caused Northrop's shares to fall more than 4 percent Monday in early afternoon trading, while TRW gained marginally.

After the merger, the TRW name will likely continue on the auto side but will disappear on the military side, TRW CEO Phil Odeen said.

"The TRW name clearly is extremely important and has lots of currency and value," Odeen said.

However, TRW's headquarters in Cleveland will be closed once the deal is consummated, which will lead to layoffs. However, executives on a conference call Monday declined to specify how many jobs will be cut.

The two companies have also agreed to a $275 million break-up fee if either company pulls out of the deal, the executives said.

Northrop Monday also confirmed its fiscal 2002 guidance of earnings per share of $6.60 to $7.10. Analysts surveyed by earnings tracker First Call expect Northrop to earn $6.05 a share this year.

The defense contractor said it should have more than 10 percent earnings growth in 2003 and 2004, although it said earnings per share that follow generally accepted accounting principles will fall to $6.00 to $6.55 in 2003, while what it calls "economic earnings" for 2003 will rise to $7.75 to $8.30 a share.