Sometimes you don't have to win to succeed.

That seems to be the strategy that Northrop Grumman Corp. is pursuing with the hostile $2.1 billion bid it launched last week to acquire Newport News Shipbuilding Inc.

Northrop's stock-and-cash bid is widely viewed as inferior to the all-cash deal being offered by General Dynamics Corp. The potential cost savings resulting from the Northrop deal are widely viewed as less than the savings possible through a GD deal. And the integration of GD and Newport News is seen as smoother, since those two companies have been jointly designing nuclear submarines for years.

Northrop, on the other hand, is resting its entire case on the argument that its offer is more likely to gain government approval a dubious assertion, industry observers say. But Northrop's bid, while widely viewed as inferior in virtually every respect, could raise just enough antitrust doubts to scuttle GD's deal. And that could be Northrop's aim from the start.

"What Northrop is doing, which is quite smart, is trying to play spoiler," said Jon Kutler, president of Quarterdeck Investment Partners Inc. in Los Angeles. "In other words, while GD and Newport News I'm sure have covered all their bases with the Pentagon on this deal, they will have to bring it to the Justice Department to be approved. There's some possibilities that, given a well-crafted story, which I'm sure Northrop will help with, they (Justice Department officials) could object to the merger or acquisition."

But Northrop might be hard pressed to make its case that a GD/Newport News merger would be monopolistic.

While Northrop's Chairman, President and CEO Kent Kresa argued last week that such a marriage would put Northrop at a competitive disadvantage and leave the entire nuclear shipbuilding business under one roof, GD spokesman Kendell Pease pointed out that the nuclear shipbuilding and submarine business has been effectively closed to competition since 1991. And Northrop has dominated the large-deck surface ships since buying Litton.

"Northrop Grumman has stated that they are the dominant surface warfare shipbuilder in the market," Pease said. "They became that with the acquisition of Litton. This present proposal by them would also make them the dominant nuclear shipbuilder in the market."

Northrop a newcomer

Another factor in GD's favor is that it already has established rapport with U.S. Navy officials, said Paul Nisbet, defense analyst at Newport, R.I.-based JSA Research Inc.


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