`POISON PILL' PANNED; LITTON SHAREHOLDERS WANT TO DROP BYLAW PREVENTING UNWELCOME TAKEOVERS.

Byline: Dave McNary Staff Writer

Shareholders of Litton Industries Inc. told the conglomerate's board Friday to throw out its 5-year-old ``poison pill,'' a corporate bylaw designed to prevent unwelcome takeover bids.

Stockholders owning 55 percent of shares endorsed a resolution that recommends Litton not maintain the poison pill, officially called a share-purchase rights plan, unless shareholders have approved it.

The results, announced at Litton's annual meeting in Marina del Rey, come amid increased efforts by shareholder activists to overturn poison pills on the grounds that they give corporations too much power in spurning buyout offers. Many major companies enacted such measures in the late 1980s and early 1990s to inhibit corporate raiders launching hostile takeovers.

Litton spokesman Randy Belote said the next step will be for the board of directors to take up the issue, but he gave no timetable. The resolution, authored by shareholders John Gilbert and Frederick Eade, specifically directed Litton's management to ``resolve all potential conflicts'' within its bylaws in order to enact shareholder approval on poison pills.

Litton, which builds Navy ships and defense electronics, enacted the pill in August 1994. At that point, the conglomerate had not been approached by a buyer.

Litton's version of the pill is triggered once a potential buyer acquires 15 percent of the stock, with shareholders then allowed to buy additional Litton stock at a deep discount. As a result, it becomes prohibitively expensive for a hostile bid to succeed.

The argument for the resolution, presented in the shareholder proxy, contended that poison pills damage shareholders by reducing management accountability and give the board veto power over any buyout deal ``no matter how beneficial it might be to shareholders.'' It also noted that pills have become ``increasingly unpopular.''

The resolution also cited concerns about Litton's performance on Wall Street, including a lack of appreciation potential, the majority of its board being insiders and a June guilty plea to criminal complaints for bribing foreign agents.

Litton's board of directors said in response that it disagreed with much of the proposal and that many of the statements were ``incorrect.'' ``The Shareholder Rights Plan does not block the acquisition of Litton nor does it convey to management any powers nor does it reduce management's accountability,'' the company's statement said.

The company also said its board was in the ``best position'' to evaluate takeover offers and asserted that the pill gives it flexibility in negotiations and enhances its ability to negotiate the highest possible bid.

John Chevedden, who presented the resolution at the meeting, said the company issued no verbal response at the event, which was attended by about 100 shareholders. Other speakers complained about Litton's stock price, which closed up 6.25 cents at $49.5625 after trading above $70 this summer.

Litton reported this week that its profit before an accounting charge rose 12 percent to $52.8 million, or $1.13 a share, for its first quarter ended Oct. 31, with a 14 percent gain in sales to $1.37 billion. Analysts said the results were boosted by Litton's August purchase of cargo-ship producer Avondale Industries Inc.