LITTON BID ACCEPTED; AVONDALE TO WAIT 48 HOURS FOR RIVAL OFFER.

Byline: Gregory J. Wilcox Daily News Staff Writer

In a marriage of two major military shipbuilders, Avondale Industries Inc. has agreed to a $529 million buyout by Litton Industries Inc. but will give a rival bidder two days to up its offer, the companies said Tuesday.

Litton's new offer bests its original $500 million bid announced May 6 and tops an earlier $470 million offer from Newport News Shipbuilding Inc. that Avondale had already accepted. That deal also won Pentagon approval.

However, terms allowed New Orleans-based Avondale to consider more lucrative bids and Litton subsequently made an unsolicited offer.

Avondale has informed Newport News of its intent to terminate the merger agreement and said it intends to sign Litton's offer following the expiration of a 48-hour deadline.

Newport News officials declined comment on the development, said company spokeswoman Jerri Dickseski.

The Litton-Avondale merger would leave Litton as the third-largest Naval contractor, behind No. 1 General Dynamics and No. 2 Newport News.

Woodland Hills-based Litton is also trying to purchase Newport News for $1.9 billion, a combination opposed by the Pentagon. However, the government indicated Friday that it does not object to the Litton-Avondale merger.

``We're extremely pleased that Avondale's board has recognized the superior value of our all-cash proposal. We look forward to executing this agreement, which will create a world-class shipbuilder,'' Michael D. Brown, Litton's chairman and chief executive officer, said in a statement.

Litton's offer works out to $39.50 a share.

Analyst Keith Patriquin at Loomis Sayles & Co. in Boston said the deal enhances Litton's economies of scale when it comes to shipbuilding and should impact earnings positively in the near term.

It improves the company's political clout, too.

``The purchase will benefit Litton from a strategic standpoint by giving them a stronger voice of power with the Defense Department, Congress and within the shipbuilding industry,'' Patriquin said.

Layoffs would probably be kept to a minimum and Litton has indicated that Avondale's senior management would be retained.

``We still expect there will be opportunity to grow and there are some advantages to combining our strengths and add value to the customer and increase value to the shareholders,'' said Avondale spokesman Ed Winter. ``The (new) company should be able to compete better in the marketplace.''

Litton's Ingalls Shipbuilding unit based in Pascagoula, Miss., designs and manufactures surface combat ships for the U.S. Navy and allied nations. Although both Litton and Avondale build amphibious and commercial vessels, there will be little overlap in the merger, officials said.

Defense Secretary William Cohen said Friday that a preliminary assessment by the Navy of a Litton-Newport News merger found that a reduction in competition among shipbuilders did not outweigh cost savings to the government.

That deal would leave the government with just two providers of combat ships, Litton and General Dynamics Corp.

Newport News, which builds aircraft carriers and nuclear submarines, has a distinctly different product line from Avondale.

Patriquin said that Litton's cost savings estimates may have been on the conservative side so as not to upset politicians whose districts may have been hit with job cuts because of the three-company merger.

``Now that strategy may have been an error because the government seems to say they want more cost savings and that can be changed,'' he said.

Shares of Newport News rose 56.25 cents to close at $28.0625. Litton shares rose 18.75 cents to $65.375. Avondale rose $1.65625 to $38.15625.