Money Matters, Simplified.
Northrop sells advisory services business for $1.65B
by Ishita Sood - November 9, 2009 - comments
Chairman and Chief Executive, Ronald D. Sugar said that the deal was good for shareholders
Los Angeles, November 9-- Northrop Grumman, the third largest U.S. defense contractor, agreed to sell its advisory services business TASC Inc. to private equity firm General Atlantic LLC and associate of Kohlberg Kravis Roberts & Co. for $1.65 billion.
TASC based in Chantilly has more than 5,000 employees. It serves intelligence, defense and civil agencies. Northrop put TASC up for sell to satisfy requirements on the conflicts of interest facing military contractors, according to The New York Times.
“This transaction is in the best interest of Northrop Grumman’s customers, employees and shareholders,” said Ronald D. Sugar, chairman and chief executive. “It reflects Northrop Grumman’s desire to align quickly with the government’s new organizational conflict of interest standards, while preserving TASC’s unique organizational culture and its status as the advisory services employer of choice.”
The deal is expected to close by the end of the year.
Main points of the deal
Northrop, while deciding to sell its unit TASC, had three options. These included, arranging an initial public offering of the unit, selling it to a strategic buyer or making a deal with any of the private equity firms.
The last seemed most suitable and attractive taking the shareholders into account. It also helped TASC to gather additional investment for expansion of its team.
The team will be led by general manger and chief executive, Wood Parker.
Kohlberg Kravis Roberts and General Atlantic will be financed by Barclays Capital, Deutsche Bank, RBC Capital Markets and Canadian Pension Plan Investment Board.
K.K.R is planning to expand its business by selling bonds supporting the above transaction. The leading investor is Highbridge Mezzanine Partners (a unit of Highbridge Capital Management).
Improvements in the credit market
Northrop has been reporting high earnings and a positive outlook for the future. Its third quarter earnings were higher than analysts’ expectations. Its net income fell about 4 percent to $490 million, from $512 million a year earlier, mainly as a result of pension expenses.
Credit markets have been improving since last year due to the private equity firms, who have been able to put their capital to use by investing in billions.
Many other giant private equity firms have announced leveraged buyouts over the last month.
The Blackstone Group purchased Anheuser-Busch InBev’s theme parks, TPG and Canada Pension Plan Investment Board’s acquired IMS Hea.