Northrop Grumman: Newport News Shipbuilding Merger, Essay Example

For the Unites States global security leading company Northrop Grumman Corporation, which was formed in 1994 by merging of Northrop Corporation and Grumman Corporation, the end of 20th and the beginning of 21st century was a period of expansion, transformation and development (Northrop Grumman Corporation, 2009). That time, the company continued to build its reputation as a leader in providing innovative products and developments in aerospace, electronic, information, shipbuilding systems and technical services (Krishnan, 2008, p. 28).

It was a time, when Northrop Grumman Corporation was “a $20.7 billion fully funded backlog and projected revenues of nearly $18 billion for 2002” (Northrop Grumman, 2002, p. 4).

Krishnan (2008) showed that in 2001 among the world’s top ten defense companies, Northrop Grumman Corporation was at the fifth place, with a defense revenue of 9 337,5 Millions of US $ (Krishnan, 2008, p. 30).

One of reasons of such growth was the acquisition of Litton Industries, Electronics and Information Systems group of Aerojet-General Corporation and Newport News Shipbuilding (Northrop Grumman, 2002). Among this three acquired companies, Newport News Shipbuilding was the one, which efficaciously doubled the size of Northrop Grumman Corporation (Northrop Grumman, 2002, p. 45).

Newport News Shipbuilding, which was first known as Chesapeake Dry Dock & Construction Company, was created in 1886 as a shipyard for repairing and building ships (Northrop Grumman Corporation, 2009).

Since than, nearly a century, Newport News Shipbuilding was the center of development, progress and innovation in ship design, construction and repairing. It designed and built various battleships, warships, dreadnoughts, destroyers, aircraft carriers, passenger liners and nuclear-powered submarines (Northrop Grumman Corporation, 2009).

The beginning of 1990s brought many changes to the shipbuilding industry. Right that time, as Krishnan (2008) noted, the Tenneco Corporation, which was merged with Newport News Shipbuilding since 1968, initiated splitting-up into separated companies. That time, Newport News was the largest U.S. non-government shipyard which main business was the construction, repairing and maintenance of nuclear-powered aircraft carriers and submarines for the U.S. Navy (Northrop Grumman, 2002, p. 17).

At the beginning of 21st century, because of financial problems, Newport News Shipbuilding debt reached about 400 millions of US $ (Northrop Grumman, 2002, p. 31). Right that time, Newport News Shipbuilding leaders started to search the company, willing to merger and help Newport News Shipbuilding and as Krishnan (2008) indicated, there were two companies willing to merger Newport News Shipbuilding: one of the leaders of building submarines General Dynamics Corporation and Northrop Grumman Corporation.

After long negotiations, discussions and court examination which started May 2001, General Dynamics Corporation lost a case, and on November 7, 2001, Northrop Grumman Corporation signed a merger agreement with Newport News Shipbuilding (Northrop Grumman Corporation, 2009).

With acquisition of Newport News Shipbuilding, Northrop Grumman Corporation became one of the world’s largest shipbuilder “capable of designing, producing and servicing every class of nuclear and non-nuclear U.S. Navy ships” (Northrop Grumman, 2002, p. 5). This agreement made Newport News Shipbuilding and Northrop Grumman Corporation one of the dominant nuclear shipbuilder in the world.

The result of business combination of two companies was 4 billion US $ shipbuilding corporation (Northrop Grumman, 2002, p. 31). The value of the Newport News Shipbuilding acquisition was about 2.6 billion US $, including about 400 million US $ of Newport News Shipbuilding debt (Northrop Grumman, 2002, p. 31).

Corresponding with Narang (1999), who single out horizontal, vertical and circular types of business combination, the merging of Northrop Grumman Corporation and Newport News Shipbuilding was a horizontal combination which involved “producing substantially the same or identical products, engaged in the same line of business” (Narang, 1999, p. 82). One more confirmation of horizontal combination of Newport News Shipbuilding and Northrop Grumman Cooperation was that the companies “combined on same common units without losing their individual identities” (Narang, 1999, p. 82) thus, after merging of Northrop Grumman Cooperation and Newport News Shipbuilding, the last should operated as a stand-alone new sector of Northrop Grumman Cooperation.

According to the official standing of tender offer on companies merging, at the end of November 2001, Northrop Grumman Corporation purchased approximately 80.7 percent  of the overdue shares of Newport News Shipbuilding common stock (Northrop Grumman, 2002, p. 16), made all necessary cash payments for the remaining balance and issued 13.4 million  shares of the company’s common stock (Northrop Grumman, 2002, p. 31).

Towards the end of 2001 fiscal year Northrop Grumman Corporation had only 19.3 percent of Newport News Shipbuilding common shares (Northrop Grumman, 2002, p. 31), but, by the end of January 18, 2002 (Northrop Grumman, 2002, p. 89), the company finally completed the acquisition of the remaining shares of Newport News Shipbuilding common stock by spending about 120 million US $ in cash (Northrop Grumman, 2002, p. 48) and issuing 3.2 million (Northrop Grumman, 2002, p. 75) shares of the company’s common stock. Accordingly, the stockholders of Newport News Shipbuilding, who surrendered their shares in the merger had the possibility to receive either 0.7193 shares of Northrop Grumman Shipbuilding for each share, or 67.50 US $ in cash (Northrop Grumman, 2002, p. 89).

The Northrop Grumman (2002) showed that goodwill and other purchased non-material assets were included in the industry segment intangible assets and the amortization was charged against the corresponding operating margin of the industry segments (Northrop Grumman, 2002, p. 65). As Narang (1999) noted, goodwill and other purchased non-material assets ability to recover had to be annually evaluated by taking into account cash flow transactions and the projected future profitability to which they relate.

That means that in 2001 goodwill and other non-material assets of Northrop Grumman Corporation were amortized on the linear method base over the average periods of 35 years and 14 years accordingly, except for goodwill obtained from the acquisitions in 2001, which according to the Financial Accounting Standards were not amortized (Northrop Grumman, 2002, p. 65).

Following years after business combinations of Northrop Grumman Corporation and Newport News Shipbuilding, brought many benefits and profits to both companies. Nowadays, Northrop Grumman Corporation is a $32 billion global defence company the main purpose of which is to provide progressive products and solutions in information and services, electronics, aerospace and shipbuilding spheres (Northrop Grumman Corporation, 2009).

References

Krishnan, A. (2008). War as business: technological change and military service contracting. Hampshire, England: Ashgate Publishing Limited.

Narang, P. (Ed.) (1999). Encyclopaedic Dictionary of Business Organization (1st ed.). Darya Ganj, New Delphi: Sorup & Sons.

Northrop Grumman Corporation. (2009). About Northrop Grumman Corporation. Retrieved September 7, 2009, from http://www.northropgrumman.com/about_us/index.html

Northrop Grumman. (2002, March). 2001 Summary annual report. Retrieved September 7, 2009, from http://investor.northropgrumman.com/phoenix.zhtml?c=112386&p=irol-financialreports