Northrop buys Litton, adds clout

Northrop Grumman Corp.'s $5.1 billion purchase of Litton Industries Inc.

is likely to make Northrop's Logicon Inc. unit competitive on contracts

as large and comprehensive as the Navy Marine Corps Intranet, according

to industry analysts and spokesmen for both companies.

"Should there be a program of that magnitude, we will have the critical

mass to bid on those types of large programs," said Bob Koch, Logicon's

director of corporate communications.

Northrop announced late Dec. 21 that it had agreed to purchase Litton

Industries. The deal would make Northrop a top competitor with companies

such as Lockheed Martin Corp. and Raytheon Co. for defense, aerospace, electronics,

shipbuilding and information technology business. The transaction is expected

to close in early 2001.

Northrop in the past few months has closed purchases of Federal Data

Corp. and Sterling Software Inc.'s federal group and has thereby increased

its presence in the federal information technology marketplace.

The purchase of Litton will add Litton's recently restructured Information

Systems Group, which includes three Litton PRC Inc. business divisions — government services, defense and range systems — and Litton TASC Inc. Those

companies would become part of Logicon, Northrop's IT unit.

"We can basically bid on anything as a prime that comes out in the marketplace,"

Koch said. If the acquisition is approved, combined sales for the companies

are projected at about $15 billion. Logicon expects annual sales up to $4

billion, he said.

Litton TASC's business at government intelligence agencies will be a

key asset to Logicon, which has not been as strong in that market, said

Tom Meagher, vice president of equity research for BB&T Capital Markets.

"It

gives them an overarching reach into every federal agency and jump starts

them into the state and local market," where Litton PRC has had some success,

Meagher said. "They had to do this transaction if they were going to be

a long-term player in defense and government IT."

Intelligence work makes up about 25 percent of Litton's IT revenue,

which is an important benefit for Northrop, said Phil Finnegan, a senior

market analyst for the Teal Group Corp.

"Intelligence customers tend to be very loyal to their contractors,"

Finnegan said. Intelligence work also is important as Northrop Grumman promotes

an integrated digital battlefield for the Defense Department that would

use navigation technologies and precision-guided weapons as well as intelligence

systems, he said.

Northrop Grumman's IT business was growing rapidly before the deal,

Koch said. Logicon had projected revenues of $2.5 billion in 2001 — 25 percent

of Northrop's revenue — without the acquisition of Litton, he said. Several

years ago, Logicon made up about 10 percent of the whole company.

The deal will enable Litton to grow more quickly than it would on its

own, said Randy Belote, Litton spokesman.

"The combination of Logicon, PRC and TASC is huge," Belote said. In

the end, the whole organization will be stronger in information systems

and defense as the companies play off each other's strengths, he said.

There is some overlap in Northrop Grumman's and Litton's federal IT

businesses, particularly on large indefinite-delivery, indefinite-quantity

contracts, but Northrop is experienced in integrating those contracts, Koch

said.

It has taken only a few weeks to integrate FDC and Sterling into Logicon,

Koch said, and Northrop Grumman pays particular attention "to things that

directly affect our employees and our customers." Layoffs are not expected

as a result of the acquisition, he said.