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. Last Updated: 07/27/2016

Northrop Hostile in $6Bln Bid for TRW

NEW YORK -- U.S. defense contractor Northrop Grumman Corp. on Sunday took directly to shareholders a $6 billion offer for defense and car parts company TRW Inc. in a bid to challenge its bigger rivals.

Cleveland, Ohio-based TRW publicly rejected the $47 a share bid just moments after Northrop turned hostile Sunday evening, but said it could not yet comment on the tender offer now before its shareholders.

If it could acquire TRW and its satellite and missile defense specialties, Northrop, which makes the B-2 bomber, would position itself to challenge No. 2 U.S. defense contractor Boeing Co. just as the Pentagon prepares to boost its spending by tens of billions of dollars.

Ohio law gives TRW 10 days to set a date for a special shareholder's meeting to vote on the hostile bid. The vote must be held within 60 days of the launch of the tender offer.

TRW shares closed at $50.25 on Friday on the New York Stock Exchange, more than $3 higher than Northrop's offer, primarily fueled by interest from about 10 other bidders, sources familiar with the situation have said.

Los Angeles-based Northrop, which unveiled its offer to TRW executives in a letter 12 days ago, said it had not yet received a "substantive response" from TRW's board, which last week informed Northrop it needed more time to review the bid.

"Accordingly, we are moving ahead to make this offer available to TRW shareholders and to initiate all the steps that are necessary to see it through to conclusion, including requesting that the TRW board of directors call the special meeting of shareholders required under Ohio law to authorize our acquisition of TRW shares," Northrop chairman and chief executive Kent Kresa said in a statement.

The offer will expire at midnight March 29. The deal's exact exchange ratio will be calculated by dividing the average of the closing price of Northrop Grumman shares for the five consecutive trading days before March 27, unless the offer is extended.

The bid is bracketed by a price-protection collar, which means the share offer ratio can be no more than 0.4563 of a Northrop share and no less than 0.4159 of a share.

Northrop said it is filing its tender offer with the U.S. Securities and Exchange Commission later Monday.

The company is also filing a lawsuit in Ohio challenging elements of the state's anti-takeover laws, Northrop said.

Ohio's takeover laws, designed to encourage negotiated mergers and protect home-grown companies, are generally considered to be among the most stringent in the country.

One of the statutes bars investors from buying large chunks of the company's stocks -- defined as worth more than $250,000 or 0.5 percent -- before shareholders vote on the offer.

The law, designed to deny merger arbitrageurs -- who typically push management to sell -- too much sway over the vote, strips such investors of their voting rights if they buy stock after the date the offer is first announced, Ohio regulators say.

In Northrop's case, that means investors who bought big blocks of stock after the offer was unveiled Feb. 21 will not be able to vote at the shareholder meeting.

Companies pursuing hostile bids in Ohio, if successful, also face a three-year moratorium on selling off the target company's assets to help pay down acquisition debt.

It was not immediately clear which of Ohio's anti-takeover laws Northrop was challenging.

Kresa said Northrop remains willing to enter friendly talks with TRW. He told a group of investors in New York last week that Northrop was not averse to including some cash in the offer, according to those who heard the remarks.

TRW executives said the offer from Northrop, which has said it would unload TRW's automotive unit in a sale or spinoff, "grossly undervalues" its businesses.

"The board views Northrop Grumman's proposal as an opportunistic attempt to acquire one of the industry's leading space and electronics systems businesses at a time when TRW's stock price was temporarily depressed" after the sudden departure of former chairman and CEO David Cote, according to a letter to Kresa by TRW chairman Philip Odeen and lead director Kenneth Freeman. Cote left TRW on Feb. 19 to take the CEO post at rival Honeywell International Inc.