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NORTHROP STIRS WATERS CONTRACTOR TRIES TO HALT SHIPBUILDERS' MERGER.

Byline: Jesse Hiestand Staff Writer

Northrop Grumman Corp. said Wednesday it was acting in the interest of national security and competition in trying to scuttle a planned merger of the nation's only two nuclear shipbuilders.

A day after making a surprise counteroffer for Newport News Shipbuilding Inc., Century City-based Northrop Grumman said it would be risky for the Navy to give General Dynamics Corp. a monopoly on the nuclear fleet.

``We believe the General Dynamics-Newport News combination would eliminate competition, endanger national security and be costly to both the Navy and to the American taxpayer,'' said Kent Kressa, Northrop Grumman's chairman, president and chief executive.

Kressa's comment came in an open letter to William P. Fricks, chairman and chief executive of the Newport News, Va.-based shipbuilder.

Newport News declined comment, saying only that its board would consider the counteroffer after having already signed a definitive agreement with General Dynamics to buy all outstanding shares for $67.50 apiece, or a total of $2.1 billion.

Northrop Grumman matched that offer with a combination of cash and stock but did not address the $500 million in debt General Dynamics has offered to assume in its all-cash deal.

``Northrop has little to lose by doing this but I do see it as relatively unlikely that they will succeed in their bid,'' said Christopher H. Mccray, an analyst of the two potential buyers for Deutsche Banc Alex. Brown Inc. in New York City. ``It could force General Dynamics to sweeten their bid or cause the government to say no to both.''

Northrop Grumman got into the nonnuclear shipbuilding business after recently buying Woodland Hills-based Litton Industries for $3.8 billion. It was likely surprised at how fast another takeover target, Newport News, was bid on by General Dynamics, said analyst Robert Norfleet of Davenport & Co. in Virginia.

``There's going to be a lot of posturing from both sides, but at the end of the day I think General Dynamics really wants this,'' Norfleet said. ``Northrop just doesn't have the ability, in my opinion, to raise the stakes.''

General Dynamics has expressed disappointment that Northrop Grumman chose to ``interfere'' with its pending purchase of Newport News.

Sounding the alarm over a potential monopoly may not be a strong enough argument for Northrop Grumman, Mccray said, because the Navy builds so few nuclear ships that there is no real competition to begin with between General Dynamics and Newport News.

The two companies last competed for a nuclear submarine project in 1991 and were teamed up by the Navy in 1997 to co-produce the Virginia-class submarine, said Norine Lyons, spokeswoman for Falls Church, Va.-based General Dynamics.

``Combining Newport News and General Dynamics is the only way to keep the two nuclear-capable shipyards open,'' Lyons said, adding that the merger could save taxpayers $2 billion over the next decade.

News of the deal affected Northrop Grumman the greatest, dropping its shares $3.50 to $88. General Dynamics lost 15 cents to close at $78.15, while Newport News gained 4 cents to $65.04.

Northrop has a variety of aerospace, information technology and defense electronics businesses.

General Dynamics builds nuclear submarines in addition to tank and other combat systems, business jets and command and control systems.

Newport News has been the nation's only builder of nuclear aircraft carriers for the past 40 years with the latest, USS Ronald Reagan, christened in March and still under construction, set to be delivered to the Navy in 2003.
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Title Annotation:Business
Publication:Daily News (Los Angeles, CA)
Geographic Code:1USA
Date:May 10, 2001
Words:580
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