Northrop Grumman Corp. yesterday agreed to buy Newport News Shipbuilding Inc. in a deal worth $2.6 billion that will create the world's largest builder of warships.
The deal ends six months of wrangling for Newport News, the nation's only builder of nuclear aircraft carriers. The 115-year-old company had agreed to be purchased by Falls Church-based General Dynamics Corp., which builds nuclear-powered submarines, but ran into resistance from antitrust regulators.
If approved by shareholders, the deal ends a wave of consolidation in the military-shipbuilding industry that began in the early 1990s. "At this point there are no large properties that aren't spoken for," said Loren Thompson, a defense consultant who works at the Lexington Institute, a think tank.
Northrop Grumman said that there would be no "significant" layoffs but that there were some obvious redundancies in the companies' headquarters.
Newport News at first will be run as a subsidiary and eventually will be combined with Northrop's other shipbuilding operations, company spokesman Randy Belote said. The company estimated that it will take a little more than a year to complete the integration.
Northrop Grumman already is the largest publicly traded employer in the Washington region, with about 16,000 employees. The acquisition of Newport News adds 17,800 Virginia-based employees.
The new Northrop subsidiary will be run by Thomas Schievelbein, Newport News's executive vice president and chief operating officer. William Fricks, Newport News chairman and chief executive, will retire when the deal is complete.
The Newport News and Northrop Grumman boards have approved the deal, but Newport News stockholders still must tender their shares for it to become final. Northrop Grumman officials said they expect to close the deal by the end of the month.
Newport News stockholders will receive $67.50 in either stock or cash. The stock-and-cash aspect of the deal is worth $2.1 billion. Northrop Grumman also agreed to assume $500 million of Newport News's debt.
Northrop Grumman is one of the leading U.S. defense contractors, with a long history of building warplanes, such as the B-2 bomber and much of the Navy's Super Hornet fighter jet. The company entered shipbuilding this year when it bought Litton Industries Inc., the leading builder of conventionally powered ships for the Navy. That acquisition gave Northrop large shipyards in Mississippi and Louisiana.
In 1999, General Dynamics and Litton each tried to buy Newport News but were rebuffed by antitrust regulators. In April 2001, General Dynamics agreed with Newport News to acquire the company for $2.1 billion in cash. Two weeks later, Northrop, which had just completed its acquisition of Litton, made its bid.
Northrop Grumman argued that a Newport News-General Dynamics merger would create a monopoly among nuclear-ship builders.
The Justice and Defense departments recently endorsed Northrop Grumman's proposal, and the Justice Department sued to block the deal with General Dynamics. That prompted General Dynamics and Newport News to abandon their merger agreement.
Northrop Grumman shares yesterday closed up 1.9 percent at $97.95. Newport News shares closed up 0.7 percent at $67.75.