General Dynamics offer for shipyard supported

NORFOLK, Va. – The board of directors of Newport News Shipbuilding Inc. voted to support General Dynamics Corp.’s $2.1 billion acquisition offer but took no position on a similar counterbid by Northrop Grumman, the Navy shipbuilder said Wednesday.

The board unanimously reaffirmed its recommendation of the General Dynamics offer of $67.50 per share in cash for all outstanding shares of Newport News common stock, the company said.

The board thinks the General Dynamics offer provides better and more certain value for Newport News stockholders, the company said. The Northrop offer contained a combination of cash and stock.

General Dynamics also is the owner of Bath Iron Works.

The board also determined that it cannot take a position on Northrop Grumman’s offer until it gets more information about the positions of the Defense and Justice departments on both offers, the company said.

“We will seek to determine the position of the U.S. government regarding these two offers as expeditiously as possible,” said Newport News chairman and chief executive Bill Fricks. “The primary interest of the board of directors is for our stockholders to receive the best value for their shares in any acquisition of Newport News Shipbuilding.”

Newport News spokeswoman Jerri Fuller Dickseski said the board did not reject Northrop’s offer, but analysts said the board’s action amounted to a rejection.

“They rejected Northrop but they didn’t say so in so many words,” said defense analyst Thomas Meagher of BB&T Capital Markets, a Richmond-based investment bank. “They were trying to be nice about it. This is definitely a ‘yes’ to GD, no doubt about it.”

Meagher said General Dynamics – also the owner of Bath Iron Works – is likely to prevail in part because its offer is all cash. In addition, he said people in the industry are questioning where Northrop would get the money for its bid since it recently acquired shipbuilder Litton Industries Inc. and whether Northrop really wanted to buy Newport News or just block General Dynamics’ bid.

Paul Nisbet, a defense industry analyst with JSA Research of Newport, R.I., said the General Dynamics deal seems to be well on its way to completion.

“What Newport News is saying here is that absent any information to the contrary from the government regulators, they’ll favor the GD offer,” Nisbet said. “But they leave the caveat that the government may choose to interfere, in which case they will have to reconsider” Northrop Grumman’s bid.

A General Dynamics-Newport News merger was scuttled two years ago after Clinton administration Defense Secretary William Cohen said it would stifle competition. But Nisbet said he doubts Northrop Grumman will be able to persuade the Bush administration to have similar concerns.

President Bush, Vice President Cheney and Defense Secretary Donald H. Rumsfeld are “businessmen instead of bureaucrats,” Nisbet said. “They will be inclined, if they can, to let matters resolve themselves in the marketplace rather than imposing conditions on deals of this sort.”