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TRW Vs. Northrop/Grumman

Monday, April 29, 2002 at 1:51 PM

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Lyndhurst-based TRW is fighting for it's life. Defense contractor Northrop/Grumman is trying to gain control of the company with a hostile takeover bid. Almost daily both sides try to convince stockholders to go along with their plans. 90.3 WCPN's Mike West has the latest on the battle over TRW, and the possible future of one of Northeast Ohio's oldest and largest corporations.

Mike West: TRW officials estimate that 25,000 people own their stock, not including employees. California-based defense giant Northrop/Grumman is trying to convince them to swap for Northrop stock at the rate of $53 a share. At least for now TRW is holding the line in the fight against the aggressive outsiders. They estimate only 2% of investors have taken the bait. But during the shareholder’s meeting Northrop gained a little ground by convincing stockholders to allow them more access to TRW’s financial records. Northrop leaders say they need to know more about TRW in order to decide whether to raise their bid. While most shareholders are hanging onto their stocks, not all are happy with TRW managers. John Reichbaum says he’s ready to sell his shares to Northrop. Reichbaum feels Northrop will do better job of running TRW operations.

John Reichbaum: I don’t know how you could have any faith in ‘em, looking at the past practices they’ve incorporated. I mean, just take a look, they hired a C.E.O. David Cote, he wasn’t C.E.O. for about a year and he blew out of town.

MW: Reichbaum is also the head of the United Auto Workers Local that represents nearly 500 workers who will lose their jobs when TRW closes it’s Cleveland valve plant at the end of June. Reichbaum says he’s disenchanted with the company he used to love.

JR: I voted for Northrop/Grumman because I have lost all faith in the ability of TRW management by committee. This is a rudderless ship that is going nowhere no definite direction. High risk on their spin-off plan.

MW: TRW managers are making a two pronged defense against Northrop. On one hand, they say their stock will rebound because their debt is dropping, sales are improving and when the company divides it’s auto parts and aerospace divisions, TRW stockholders will own shares in each new company. On the other hand they say Northrop is offering shareholders a fair deal and they should wait for a higher offer. John Gentile is a shareholder willing to give TRW executives a chance. He supports TRW’s restructuring efforts and it bothers him that minor shareholders were allowed to spend meeting time trying to sway other investors to sell out.

John Gentile: We’re for TRW - we (would) like to see it stay. I don’t like when somebody with 10 shares of stock tells people what they should do. And I think that should change someday.

MW: Making stockholders happy is one thing, but what about the general public - how would they be affected by the merger? James Brock is a professor of economics at Miami University in Oxford, Ohio who specializes in hostile takeovers. He says the TRW/Northrop combination is a mistake.

James Brock: For two reasons. One, I think the record is crystal clear that mega-mergers of this magnitude are overwhelmingly mediocre at best and more often than not disastrous in terms of their subsequent economic and financial performance. Second, it disturbs me that it seems to be a continuation of this trend toward the monopolization of defense weaponry and production in the united states that we seem to be evolving a kind of system of bolshevik capitalism where we have essentially production by just a handful gigantic arms merchants.

MW: Brock says if Northrop or another company like Boeing or Lockheed gets its hands on TRW it means the government will lose its ability to shop for the best prices and punish blown deadlines and cost overruns on government contracts. But even with the disadvantages in mind, he says the government will probably allow a sale, even if it is not in the best interest of taxpayers.

JB: Unfortunately the record in this particular field I think is abysmal. Under either Clinton or Bush, Republican or Democrat in recent years they seem to want to allow this kind of consolidation and we’ve seen a terrific amount of it that’s taken place in the last 10 years.

MW: Brock says stockholders should consider the big picture when deciding whether to sell. He says similar deals have turned out to be losers.

JB: The track record for these very large mergers is abysmal and if you just look around you see it all around you - Chrysler and Daimler has been a disaster, AOL/Time-Warner seems to be falling apart, AT&T spent $100 billion acquiring all kinds of cable operations and now it’s selling them for half that much and right there in your own backyard the big steel company mergers, LTV and Republic didn’t seem to be any kind of magical solution to their problems and those are not a-typical or isolated examples. So I think that’s a broader concern that ought to be raised here as well.

MW: No matter what happens, TRW will probably leave Cleveland anyway, taking 380 white-collar jobs and a million dollars in taxes. That’s according to the Mayor of Lyndhurst. Barry Jacobson says despite denials by company leaders, he is counting the days.

Barry Jacobson: I think mentally everybody is of the mindset that something is going to happen - it’s just a matter of when. I don’t think it will come as a surprise. I won’t be happy to see them leave, don’t get me wrong, because they’ve been a terrific neighbor and we’ve enjoyed having them, we enjoy the tax base we get from them.

MW: About a year ago, TRW leaders threatened to leave the city of Lyndhurst if voters didn’t allow them to build a shopping center on 67 of their 185 acre campus. The rezoning passed and now TRW will probably leave anyway. Yet, Mayor Jacobson says there are no hard feelings.

BJ: You know what, I think that people who follow the situation were of the mindset of regardless of what happened they were probably going to be leaving at some point in the future anyways. So I don’t think we’ll have anymore discussion than we have already had.

MW: The next event in the takeover fight will come at a meeting on Friday. That’s when shareholders will be asked if Northrop should be allowed to buy more than 20% of TRW’s stock and be given shareholder voting privileges. In Cleveland, Mike West, 90.3 WCPN News.

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