Defense giant Northrop Grumman Corp. announced yesterday that chief executive Kent Kresa, known for hard-charging dealmaking that saved the once-sputtering company, will retire in April.
After more than 10 years at the helm, Kresa will turn over the reins to his handpicked successor, Ronald D. Sugar, an electrical engineer with strong political skills.
The transition comes as Los Angeles-based Northrop caps an acquisition spree that has more than doubled its size in the past five years and shifts to the trickier task of managing the hodgepodge of businesses it has assembled.
"Five years ago Northrop Grumman looked like a dying company. They had some good businesses, but they lacked the market presence to prevail against much bigger competitors," said Loren B. Thompson, a defense industry analyst for the Lexington Institute, an Arlington think tank. "Kresa will be remembered as the guy who saved the enterprise."
Kresa reaches the company's mandatory retirement age, 65, next month. Sugar, 54, currently the president and chief operating officer, has long been expected to succeed him. Kresa will stay on as a non-employee chairman until Oct. 1. The company is still working on compensation packages for both executives.
Kresa has been credited with transforming Northrop from a $5 billion company dependent on the B-2 bomber for half of its revenue to a $25 billion defense giant with growing positions in missile defense, shipbuilding and information technology. Since becoming chief executive in 1990, Kresa has pushed through 16 large acquisitions, guiding Northrop into the top tier of defense companies, along with Bethesda-based Lockheed Martin Corp. and Boeing Co. of Chicago.
Kresa even got Sugar through an acquisition. Sugar joined Northrop in 2001 when the company bought the shipbuilder Litton Industries Inc., where Sugar served as president and chief operating officer.
But there were some rough spots. When the Justice Department prevented a merger with rival Lockheed in 1998, many in the industry predicted Northrop's demise. Instead, Kresa launched another acquisition binge. "The way he rallied Northrop Grumman after the devastating denial of the government -- I think everyone would agree it was an impressive recovery," said Brett B. Lambert, an analyst for DFI International.
Sometimes Kresa's tactics angered rivals. General Dynamics Corp. was close to a deal with Newport News Shipbuilding Inc. when Northrop stepped in with its own bid. The Justice Department favored Northrop in the deal, handing General Dynamics a bitter defeat. Last year, when TRW Inc. was weakened by the sudden departure of its chief executive, Kresa pounced, launching a hostile takeover that ended with a $7 billion deal.
"To try a hostile takeover was new in the industry and it did ruffle feathers," Lambert said. "He was more interested in building the company than having smooth feathers."
Kresa's reputation could make it more difficult for Sugar, who will need to repair some relationships both within the military and in the industry, said industry consultant Robbin Laird. "Sugar is going to have to operate in a different way," he said.
But Kresa's approach has proved valuable, industry officials say. Northrop Grumman has "reached the point where they are motivated less by a desire to grow and survive and more to fine tune, to get things right," said Stuart McCutchan, publisher of the newsletter Defense Mergers & Acquisitions.
The major challenge awaiting Sugar will be finishing the job of integrating the companies, industry analysts said. Other defense companies, including Raytheon Co. and Lockheed, have struggled to bring their pieces together.
"The company is not well integrated no matter how often they say it. They have to decide what part of the portfolio to keep and not keep," said Laird.
Sugar discounts such concerns. Northrop has already successfully merged with 15 of the companies it has acquired and only TRW is left, he said. "I do not stay up late at night wondering whether we can integrate TRW," said Sugar, who spent 20 years at TRW before resigning after he was passed over for the chief executive's position.
Northrop may launch a few more small acquisitions or divestitures to perfect its portfolio, but it will not go through any major changes, he said.