Northrop Grumman Corporation (NOC) has received approval of the spin-off of its shipbuilding business, after much speculation, from its board of directors. The spin-off is however subject to clearance from the U.S. Securities and Exchange Commission. In July 2010, the company had announced initial plans of separation of the Shipbuilding segment and in November 2010 had suggested that the spun off unit would be christened Huntington Ingalls Industries Inc. (HII). Management believed that this would allow both the company and the Shipbuilding unit to more effectively pursue their respective opportunities and maximize long-term value.
On March 31, 2011, Northrop Grumman will pay a pro rata dividend of HII common stock to its stockholders of record as on March 30, 2011, as approved by the board of directors. Northrop Grumman stockholders will receive one share of HII for every six shares of Northrop Grumman common stock they hold. However, no fractional shares of HII common stock will be distributed. They will be aggregated and sold in the open market. The net proceeds will be distributed ratably in the form of cash payments to the company’s entitled stockholders.
Huntington Ingalls common stock is expected to conditionally begin trading “when issued” on the NYSE under the symbol “HII WI” beginning on March 22, 2011. On March 31, 2011, the distribution date, “when issued” HII WI trading will end and “regular-way” trading under the symbol HII will begin.
In February 2011, Northrop Grumman had announced that HII intends to offer up to $1.175 billion senior unsecured notes due 2018 and senior unsecured notes due 2021 as a part of the financing for an anticipated spin-off. Additionally, it is taking steps to arrange up to $650.0 million of senior secured revolving credit due 2016 and a senior secured term loan due 2016 of up to $600.0 million with lenders.
In July 2010, Northrop Grumman had also announced the planned closure of its Avondale shipbuilding facility in Louisiana effective 2013. The unit has struggled from a slowdown in shipbuilding contracts and has faced increased competition from rivals like General Dynamics Corporation (GD).
Northrop Grumman offers a strong program portfolio positioned to take advantage of growth in the defense space, an improving balance sheet and an ongoing share repurchase program. However, this is offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost over-runs and substantial exposure to missile-defense-related programs. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. The company mainly competes with The Boeing Co. (BA) and Lockheed Martin Corporation (LMT).
Based in Los Angeles, California, Northrop Grumman Corporation provides products, services, and solutions in information and services, aerospace, electronics, and shipbuilding to the military, government, and commercial customers in the United States and internationally.
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