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By Zachary R. Mider, Cristina Alesci and Gopal Ratnam
Bloomberg News
Northrop Grumman Corp. told private-equity firms it is scrapping a plan to sell its shipbuilding business and will instead pursue a spinoff of the unit, three people with knowledge of the matter said Friday.
Bids weren't high enough to keep pursuing an auction, said one of the people, who asked not to be identified because the talks are private. A sale might have raised $2.5 billion to $3 billion before taxes, while a spinoff might be valued at about $2 billion, the person said. Bain Capital LLC, KKR & Co., TPG Capital and Carlyle Group had been bidding, people had said.
The company runs Northrop Grumman Shipbuilding-Newport News and shipyards in Mississippi and Louisiana.
The shipyard in Newport News employs nearly 20,000 people building nuclear-powered subs and carriers.
CEO Wes Bush said in July that he was studying the future of the shipbuilding unit to focus on defense electronics, drones and surveillance technologies. Northrop began acquisitions in 2001 that built the company into the Navy's largest supplier of ships.
"Shipyards require a lot of management focus and attention, so Northrop would be better served if the ship unit is under a dedicated management team," said David Rowlett, a Baltimore-based analyst at T. Rowe Price Group Inc., which owns 3.1 million Northrop shares.
After separating the ship unit, Northrop would be left with four divisions - Aerospace Systems, Electronic Systems, Information Systems and Technical Services - whose products include the Global Hawk high-altitude drone, radar for the F-35 and F-22 jet fighters, cyber-security systems, and the James Webb Space Telescope, expected to be launched in 2014.
"We continue to explore strategic alternatives," Randy Belote, a spokesman for Los Angeles-based Northrop, said in a telephone interview. "We don't comment on specifics."
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