Northrop Grumman Corp.’s unsolicited takeover bid for aerospace and automotive group TRW, leaves TRW’s automotive operations in a position of considerable uncertainty.
Northrop’s bid is for the whole of TRW’s operation, but is driven by the company’s aerospace and defence operations, which offer a strategic fit to Northrop’s business. In a letter to TRW proposing the buyout, Northrop said the auto business was “an outstanding operation in its own right,” but it didn’t fit with either of the companies’ businesses.
A Northrop acquisition deal could lead to the automotive side of TRW’s operation being spun off; comments from Northrop indicate that it apparently has no strategic interest in TRW’s automotive operations.
TRW’s automotive division is estimated to account for around half the value of TRW and makes suspension and steering systems, passenger safety systems such as seat belts and air bags, and replacement parts, as well as other components.
Northrop may be anxious to spin off the automotive operations quickly and at a discount in order to avoid the danger of being weighed down by them. TRW’s auto operations are – like most auto components sector companies – suffering from poor trading conditions in the sector as the vehicle producers have cut back production schedules amid falling orders and growing inventory.
However, analysts note that TRW has been through some restructuring already. Moreover, a recovery to production could be underway later this year, as inventory levels fall and demand picks up.