Northrop pursues TRW takeover

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Posted 10:41AM on Tuesday, March 5, 2002

COLUMBUS, OHIO - Northrop Grumman Corp. will move forward with its hostile bid for TRW Corp., but it will face a set of highly regarded anti-takeover laws that are a part of Ohio's legal code. Kent Kresa, chairman and chief executive of Los Angeles-based Northrop Grumman, said the company will file a lawsuit in Ohio challenging elements of the state's anti-takeover laws. That lawsuit would likely be a request for an injunction in federal court. Ohio generally is considered to have tough laws governing how companies can mount such bids, although analysts have debated their ability to kill the deal. ``The Ohio takeover protections do not appear insurmountable,'' analyst Kenneth Blaschke of Deutsche Banc Alex. Brown Inc. wrote Monday in a research note to clients. Andrew Casey of Prudential Securities said there are other states with even tougher takeover laws - such as Indiana - but ``Ohio's are not that amenable to a hostile takeover.'' Northrop Grumman is questioning three laws that tie the hands of companies making takeover bids, said company spokesman Randy Belote. ``They go farther than the laws which the U.S. Supreme Court has upheld in the past and discriminate in favor of some stockholders over others,'' Belote said. For example, the state bars a company from acquiring more than 20 percent of a second company's stock unless that company's stockholders authorize such a transaction, he said. Tom Geyer, assistant director of the Ohio Department of Commerce, said state law governing mergers and takeovers is not unduly burdensome. The laws ``are easier to comply with in the case of a negotiated takeover, but they certainly do not prohibit what we'd call in this case a hostile takeover,'' Geyer said. ``It's just additional procedures that have been put in place primarily for the benefit of the shareholders of the target company.'' A portion of the 1982 Ohio Control Share Acquisition Act prohibits individuals who acquire more than $250,000 of a company's stock following the announcement of a takeover are not allowed to vote on that bid at a shareholders' meeting. That law is meant to diminish the influence of merger arbitrageurs, who snap up stock after an announcement and generally would be assumed to vote on behalf of the takeover bid, Geyer said. ``By disqualifying those people, you allow people who were original shareholders in a company to vote on the transaction,'' he said. And the 1990 Ohio Business Combination Statute prevents a firm that acquires more than 10 percent of a company's stock without the approval of that company's board from merging divisions or spinning off subsidiaries for three years. That law is intended to protect the interests of minority stockholders who didn't vote for the takeover, Geyer said. A combination of factors has led to Ohio's ``strong quiver of arrows'' when it comes to anti-takeover laws, said Ronald Coffey, a law professor at Case-Western University and a former state commerce director. They include support from both labor and incumbent managers fearful of the effects of takeovers, he said. Overall, the available data suggests the laws don't benefit the shareholders of a company targeted for a takeover, said Coffey, who opposes many of the laws.