LITTON DROPS PLANS TO ACQUIRE NEWPORT NEWS.

Byline: Deborah Adamson Staff Writer

Litton Industries dropped its bid Friday for Newport News Shipbuilding, an action the industry had anticipated after the government signaled its unwillingness to approve such an acquisition.

The aerospace-defense company had sought to buy the Navy's main supplier of nuclear-powered aircraft carriers for $1.9 billion, but Defense Secretary William Cohen indicated last month that such a marriage would be anti-competitive. Had the deal gone through, it would have reduced the number of military shipbuilders to two from three.

In the meantime, Woodland Hills-based Litton is pushing ahead with its acquisition of Avondale Industries, a New Orleans-based shipbuilder. The $529 billion purchase is expected to be approved by Avondale shareholders July 27.

Earlier in the year, Newport News had announced plans to buy Avondale for $470 million, but Litton shook up the deal in May by announcing that it wanted to acquire both Newport News and Avondale. The board of Avondale accepted Litton's higher bid, and Newport News didn't raise its offer.

An industry tracker said Friday that the Pentagon's reasons for opposing the Litton-Newport deal centered on the issue of the clout that Litton would have carried if the merger had taken place.

``I think (the government disallowed the deal) because they didn't want Litton to have the ability that Newport News has of building nuclear submarines and aircraft carriers, along with everything else they already do,'' said Paul Nisbet, an analyst at JSA Research in Newport, R.I. ``It would put too much power in one hand. Now they've got three strong shipyard owners.''

The purchase of Avondale pits Litton against Newport News as the nation's second-largest military shipbuilder. If Litton had been allowed to buy both Avondale and Virginia-based Newport News, the combined behemoth would have had similar market share as top shipbuilder General Dynamics.

General Dynamics' marine group sales for the year total an estimated $3 billion while Newport News and the Litton/Avondale combination are both in the $1.9 billion range, Nisbet said. Litton's shipbuilding revenues are about $1.1 billion a year, and Avondale would add another $800 million to it.

Not surprisingly, Litton said Friday that it was disappointed by the government's reaction.

``We are certainly disappointed by the cool reception,'' said Litton spokesman Randy Belote. ``(The acquisition) would have created realizable cost savings for the U.S. Navy and other customers.''

Actually, Litton didn't have a formal merger agreement with Newport News, Belote said. However, the company had asked the government to do a preliminary review of the proposed merger to test the regulatory waters.

The Avondale deal should be finalized shortly after shareholders give approval later this month. Belote said Litton plans to save money by improving efficiency in areas of common practice such as materials purchasing and human resources. He said there are no plans to cut jobs.