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Aircraft industry

Northrop and Grumman Merger Creates Top Builder of Reconnaissance Planes

Strategic Insights

— 1 min read

Northrop Corp.'s takeover of Grumman Corp. will create the world's top builder of reconnaissance planes and significantly increase its electronics surveillance business, according to Northrop Chairman Kent Kresa. The combination of the two companies, with annual revenues of about $8 billion and 48,000 employees, will have "world-class" capabilities to design and build new tactical and surveillance aircraft, Kresa said. The merger will also add Grumman's expertise in defense electronics and airplane manufacturing to Northrop, which is facing declines in revenues from the winding down of its B-2 stealth bomber program.

Key Takeaways:

  • Northrop's takeover of Grumman will create the world's top builder of reconnaissance planes, with annual revenues of about $8 billion and 48,000 employees.
  • The combined company will have "world-class" capabilities to design and build new tactical and surveillance aircraft, including the ability to increase its business in electronics surveillance.
  • Northrop brings strong capabilities in missiles and in systems integration to the combined company.
  • Grumman's expertise in defense electronics and airplane manufacturing will add significant capabilities to Northrop's existing programs.
  • The key area for Northrop is in electronics, where it has now become a top-tier participant due to the deal.
  • Northrop will have enough "critical mass" to compete against other major players for new and existing programs.
  • The merger will create a strong congressional delegation backing the survival of its programs, with Grumman having a strong lobby in New York and Northrop in California.
  • Northrop's other programs include missiles and building parts of the F/A-18 fighter for McDonnell Corp. and the 747 jumbo jet for Boeing Co.
  • Grumman was facing the prospect of becoming a second-tier defense contractor without the muscle to bid on a dwindling number of major contracts.

Statistics:

  • The combined company will have annual revenues of about $8 billion.
  • The merger will result in 48,000 employees.
  • Northrop will have to cut 3,000 jobs this year.
  • Grumman stock was well above $60 a share, despite only accepting a $2.17 billion takeover bid from Northrop Corp.
  • The acquisition cost Northrop Corp. $2.17 billion, compared to a $1.93 billion offer from Martin Marietta Corp.

Sources:

  • UPI Business Writer DAVE McNARY
  • Northrop Corp. Chairman Kent Kresa
  • Jon Kutler, president bicoastal investment bank Quarterdeck Investment Partners

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