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Northrop Says Private-Equity Firms May Buy Ship Unit

Northrop Grumman Corp. Chief Executive Officer Wes Bush said private-equity firms may be interested in the company’s shipbuilding unit as the third-largest U.S. defense contractor studies a sale or spinoff.

“There might be financial buyers who see it as a value-creation opportunity,” Bush said today in an interview at the Farnborough Air Show, near London. As a standalone company focused on ships, the division also might attract other military contractors, Bush said.

Northrop, the largest maker of U.S. Navy vessels, said July 13 it would shut a Louisiana shipyard and shift operations to a Mississippi facility as a first step in selling or spinning off the ship unit. Northrop branched into shipbuilding nine years ago to add to its aviation and missile businesses.

That approach no longer fits Northrop’s strategy, said Bush, 49, who became CEO in January. The U.S. buys ships from Los Angeles-based Northrop and orders electronics and weapons from other providers, so “we have no opportunity to sell the Navy fully integrated solutions,” he said.

Bush’s actions signal a “pretty decisive break with the past and moving aggressively to change things,” said Philip Finnegan, an analyst at consultant Teal Group in Fairfax, Virginia. “He’s focusing more on profitability rather than on size, and that’s a big change in the mindset at Northrop.”

Several Quarters

Reaching a decision on the ship unit’s future may take several quarters, Bush said last week. The Defense Department has said a sale to General Dynamics Corp., the Navy’s second-biggest shipbuilder, would trigger competition concerns.

Rob Doolittle, a spokesman for Falls Church, Virginia-based General Dynamics, said last week that it would “be inappropriate for us to speculate about any potential effect of Northrop Grumman’s announcement.”

Northrop rose 75 cents, or 1.4 percent, to $55.49 at 4 p.m. in New York Stock Exchange composite trading. The shares declined 2 percent this year through July 16.

Shipbuilding accounted for 17 percent of Northrop’s 2009 sales, according to data compiled by Bloomberg. Exiting the business would leave Northrop with units focused on aerospace, electronics, information systems and technical services. “Those four elements will work well together,” Bush said today.

Drones, Radar

Northrop’s products include the Global Hawk unmanned surveillance plane; radar systems for F-16, F-22 and F-35 jet fighters; cybersecurity services to defense and intelligence agencies; and aircraft logistics and maintenance support. Northrop also built the B-2 Spirit stealth bomber.

The company bought the shipbuilding business of Litton Industries Inc. in 2001, and bought Newport News Shipbuilding Inc. a year later after the Justice Department blocked General Dynamics’s bid.

Bush has focused on improving operations in the shipbuilding unit, which has been cited by the Navy for poor quality and delays in deliveries.

The yard in Avondale, Louisiana, will wind down in 2013 and work will be sent to Pascagoula, Mississippi, Northrop said last week. Northrop also owns a yard in Newport News, Virginia.

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