Nov. 8 (Bloomberg) -- Northrop Grumman Corp., the third- largest U.S. defense contractor, agreed to sell a government- consulting unit to a group of investors led by General Atlantic LLC and Kohlberg Kravis Roberts & Co. affiliates for $1.65 billion.

The sale, to comply with new rules designed to prevent conflicts of interest, will generate about $1.1 billion cash after taxes, Northrop said today in a statement. The deal requires regulatory approval, and Northrop said it may be completed by year end.

The transaction “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,” Northrop Chief Executive Officer Ronald D. Sugar said in the statement.

Northrop put TASC up for sale to address concerns among lawmakers that some defense contractors were both advising government agencies on weapons systems and bidding for contracts to build them. The purchase gives the buyers an opportunity to benefit from U.S. defense spending, which will reach $680 billion in budget year 2010.

The TASC unit was acquired by Northrop as part of its $5 billion takeover of Litton Industries Inc. in 2001. The unit, formerly called The Analytic Sciences Corp., was founded in 1966 by engineers from the Massachusetts Institute of Technology and now has almost 5,000 employees.

The TASC unit sale is one of Northrop Chief Executive Officer Ron Sugar’s biggest divestitures. Sugar, who has sold a dozen businesses since 2003, has announced plans to step down in December. He will be replaced by Wes Bush, now president and chief operating officer of Los Angeles-based Northrop.

Northrop doesn’t break out sales and earnings data for the unit, which is also called Advisory Services. The business is part of Northrop’s information systems division, which had sales of $5.08 billion in the first half of this year, or 29 percent of Northrop’s total of $17.3 billion for the period.

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net; Jason Kelly in New York at zmider1@bloomberg.net.

Last Updated: November 8, 2009 16:25 EST