Again, Northrop Thwarted
Northrop Grumman, the rocket that never stops struggling to reach orbit, was thwarted once again Thursday in its decade-old ambition to reach the top ranks of the U.S. aerospace industry.
Although Los Angeles-based Northrop lost the $9.5-billion battle for the defense operations of Hughes Electronics and now ranks in fourth place in the aerospace industry, analysts said it remains a strong company with $8 billion in sales and plenty of options left for future acquisitions.
Northrop Chairman Kent Kresa, the company’s optimistic 58-year-old chairman, said he and the company’s other employees remain confident and believe the firm’s prospects are healthy.
“I don’t think they’re disappointed,” Kresa said. “We haven’t acquired all of the properties we’ve sought, but we’ve acquired some damn good ones.”
Northrop, he said, is “still interested” in some of the “many other assets” that are leftovers from the recent wave of consolidation.
Although Kresa declined to name any firms, analysts said possible acquisition candidates include ITT Industries of White Plains, N.Y.; TRW Inc.’s operations in Redondo Beach; Litton Industries of Woodland Hills; and Harris Corp. in Melbourne, Fla., all of which have space and defense electronics businesses that would complement Northrop nicely.
Other possibilities include Trimble Navigation, a Sunnyvale, Calif., maker of global positioning system receivers; Aerojet Inc. of Sacramento; B.F. Goodrich of Akron, Ohio, which does work in aircraft electronics; and Chula Vista, Calif.-based Rohr Inc., which is strong in aircraft parts manufacturing. None of those companies individually would vault Northrop into the top ranks.
“It was a game of musical chairs and now the music has stopped,” said aerospace analyst Joseph Campbell of Lehman Bros. “It’s not that there are no chairs, but Northrop doesn’t particularly like the ones that are left.”
Even without a quick acquisition, analysts said the firm is on a solid footing.
“I don’t think that somebody who is only an $8-billion company is somehow terminal,” said Wolfgang H. Demisch, a managing director with BT Securities in New York.
Of course, there’s no denying that Northrop would have been a stronger competitor to the likes of Lockheed Martin and the new Boeing-McDonnell Douglas combination if it had submitted the winning offer for General Motors’ Los Angeles-based Hughes division. Now it will count a bolstered Raytheon among its rivals as well.
But analysts agreed that Northrop need not make a panic purchase to bulk up its size and market share. Investors remained calm in the face of defeat Thursday, sending Northrop Grumman shares up 37.5 cents to close at $78.00 on the New York Stock Exchange.
Although the aerospace industry has adopted an “eat-or-be-eaten” mentality, the merger alumni have yet to prove that bigger will necessarily be better, said Loren Thompson, director of the defense program at the Alexis de Tocqueville Institution in Arlington, Va.
The fact that so many conglomerates have been broken up shows that that strategy didn’t work in the commercial world, he said. Besides, he said, “normally companies grow more by selling more of what they already do than by buying everybody else.”
Northrop is probably safe from attack itself. Because there is substantial internal ownership, any bidder would need to have the consent of Northrop insiders to pursue a deal, Demisch said.
The companies that stand to lose the most ground in the wake of the Raytheon-Hughes deal are ITT, TRW, Litton and other smaller firms that are less than half as big as Northrop Grumman and chose not to put themselves up for sale even as competition has driven prices higher for such companies, analysts said.
For Northrop Grumman, losing its bid for Hughes may turn out to be a blessing in disguise. After all, Northrop paid far less for Grumman than Raytheon is paying for Hughes or than Boeing will pay for McDonnell Douglas.
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Times staff writer James F. Peltz contributed to this report.
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