NOC/TRW Merger

Discussion in 'Trading' started by GreenDog, Jul 1, 2002.

  1. Should provide a lot of opportunities! :D
     
  2. looks like a cash deal
     
  3. =DJ NEWS WRAP: Northrop to Buy TRW for $7.8 Billion In Stock
    NEW YORK (Dow Jones)--Northrop Grumman Corp. (NOC) announced plans to acquire
    TRW Inc. (TRW) in a sweetened deal the companies valued at about $7.8 billion,
    or $60 a share, that would make Northrop the nation's second-largest military contractor
    behind Lockheed Martin Corp. (LMT) while ending TRW's 101-year history as an innovator
    in the automotive, defense and aerospace industries.
    The pact ends a four-month standoff that began when Northrop launched a $5.9
    billion hostile bid for TRW in February.
    The agreement announced Monday, which has won the approval of both companies'
    boards, calls for Northrop to provide between 0.4348 and 0.5357 of one of its shares
    for each share outstanding of TRW. That represents a 27% increase over the $47
    a share Northrop initially offered TRW on Feb. 21 just two days after TRW's then-chairman
    and chief executive, David Cote, suddenly quit to join another company.
    TRW shares closed at $56.98, up 36 cents Friday at 4 p.m. Northrop stock closed
    at $125, down $2.82. Both companies are listed in the New York Stock Exchange.

    Northrop is also expected to take on about TRW debt valued at about $4 billion.
     
  4. Spread went from ~ 68 to 61.63 at the close!

    Nice little bootie today. Closed out the "pair" at the close. Hopefully get a nice range established with decent volatility.

    Anyone else playing??
     
  5. GreenDog, how are you planning to play this merger? It's an all stock deal, but as long as NOC stays within it's price collar, TRW should be pinned to $60 +/- whatever risk premium the market assigns to this deal.
     
  6. I'm gonna try half of NOCs price vs. TRW - nice easy calculation!

    Any insights on trading NOC or TRW? My (limited) experience with NOC, it makes these really nice 1-2 pt. moves with the S&Ps?
     
  7. Green Dog

    Your playing with Fire....

    This isn't a pair or a merger.........it's a CASH deal

    If NOC goes up 40 points in the next few weeks..

    TRW will still be near 60

    (it might just drop .20)

    If NOC drops 40 points in the next few weeks TRW will still be near 60

    as long as merger is sound



    Robert

    It didn't trade at 68 or 61. The merger is trading at 3.42

    They are paying 60 and the arb's are giving it risk of $3.42 that it won't go through. Not $61 it won't go through.
     

  8. That would be fine..........if

    NOC was doing a stock deal and giving a % of shares to all the TRW shareholders.

    They are giving $60 in cash.

    You'd be better hedging with the SPY than TRW.

    Robert
     
  9. "Under the deal, Los Angeles-based Northrop, the nation's third-largest military contractor, will offer between 0.4348 and 0.5357 of a share for each TRW share."

    I have seen the $60 figure, as an estimate of the value of the deal based on the current prices, and as a price target by an analyst. I have not seen anywhere where this is an all cash deal. Where does it say this?
     
  10. Today was the easy part on this arb play. Will keep an eye on the risk premium -- chances are it will fluctuate enough to trade in and out.

    ... if not -- then on to the next play(s).

    On M & A spread plays (as well as my normal pair trading), I set up my Tradestation charts and note the volatility. It's that easy. I'm always on the the lookout for another AOL/Time Warner situation -- AOL/TIME WARNER = more real estate in Palos Verdes!!
     
    #10     Jul 1, 2002