The last big aerospace company headquartered in L.A. seemed destined to disappear last week after Bethseda, Md.-based Lockheed Martin Corp. announced that it will buy Century City-based Northrop Grumman Corp. in a deal valued at $11.6 billion.
Combined, the two companies will have estimated 1997 revenues of $37 billion and 230,000 employees, with about 18,000 of those in the Los Angeles area.
The acquisition must receive shareholder and government approval, and is expected to close by the end of the year.
The deal's announcement came less than six months after Northrop lost out to Lexington, Mass.-based Raytheon Co. in a bidding war to buy the aerospace and defense units of Hughes Electronics Corp. from parent company General Motors Corp.
That, along with Northrop's failure to win key defense contracts over the last year, opened up speculation that the company would be the aerospace industry's next big target for acquisition.
After Northrop lost the Hughes Electronics bidding war in January, Chairman and Chief Executive Kent Kresa said that the company was "not for sale," and saw a positive future for itself as an independent company a view he maintained last week.
"I would say first that Northrop did not actively seek this transaction," Kresa said during a telephone news conference originating from Maryland. "I do believe that we are a very strong company stand-alone and could compete and could grow, and I haven't changed that view."
Although many analysts expected Northrop to be acquired, the timing of Lockheed's announcement came as a surprise. Lockheed was thought to be too occupied with digesting its $9 billion purchase of Loral Corp. last year, not to mention a spate of major defense and space contracts it has won recently, to consider a large acquisition.
Kresa said he was approached by Norman R. Augustine, chairman and CEO of Lockheed, and had been in serious discussions with him for a month before the deal was announced.
"As we came to a final arrangement, it was clearly very positive for our shareholders," he said.
Lockheed and Northrop executives said that, with little crossover in their businesses, they do not expect major layoffs throughout the combined company and instead expect total employment to grow after the consolidation.
"Together we'll have a very strong combination," Augustine said.
In Los Angeles, the Northrop employees most at risk are the 350 at the company's Century City headquarters the only facility that Northrop officials said definitely will close as a result of the acquisition.
Another 125 employees considered duplicative of Lockheed's Bethseda administration are based in Hawthorne.
"We do expect that there will be some layoffs the exact number has yet to be determined," said Northrop spokesman Jim Taft.
Northrop employs about 13,000 workers in Southern California. Most of them about 6,162 are based in the El Segundo/Hawthorne area, where the company's military aircraft systems division is based. Another 4,500 are based in Pico Rivera, where the company's groundbreaking B-2 stealth bomber was developed and engineered, and 3,000 workers are based in Palmdale, where the B-2 is assembled.
Other workers are based in Point Mugu and in field offices throughout the L.A. area.
Lockheed Martin, by the end of summer, will have about 5,750 employees in the L.A. area. About 5,000 of those are based at the company's Skunk Works facility in Palmdale, where prototypes for the X-33 space shuttle, the Joint Strike Fighter, and missiles employing stealth technology are being developed.
Jon Kutler, president of Quarterdeck Investment Partners Inc., an L.A.-based investment bank that specializes in the aerospace and defense industries, said he expects very little drop in employment in the L.A. area after the acquisition.
"While the people may be different in a head-count perspective, we may come out OK in L.A.," Kutler said.
Jack Kyser, chief economist with the Economic Development Corp. of L.A. County, said the biggest loss for Los Angeles from the acquisition is that it will no longer have a major aerospace company based in the region.
"A lot of people feel that this is just another indicator that the industry is moving away from Southern California, and they lament that," Kyser said.
Even though the same people will likely remain in the region, L.A. loses the prestige of being an aerospace industry headquarters, Kyser said. He does not expect the number of production and research and development workers the two companies employ in the region to change significantly.
If the acquisition goes through, Kresa will move to Maryland and become vice chairman of Lockheed Martin once Northrop is acquired. Augustine will retire as CEO of Lockheed at the end of this month, but will remain chairman. Lockheed Vice Chairman Vance D. Coffman will become CEO on Aug. 1.
Northrop stocks benefited from last week's announcement, selling at $110 at the close of trading Thursday, up $21.125 from the day before. Lockheed's stock price dipped by $4.875 from the previous day's trading, closing at $99.125.
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