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Martin's offer to LTV may lose key supporter Top creditor now will back highest bidder


DALLAS -- The federal agency that guarantees pension funds might withdraw its support for Martin Marietta Corp.'s proposed purchase of LTV Corp.'s aircraft and missiles operations.

A spokesman for the Pension Benefit Guaranty Corp., the largest creditor in LTV Corp.'s bankruptcy case, said the agency will support the highest bidder.

Until Monday, the highest bidder appeared to be Martin Marietta, which offered $440 million for the missiles unit. Then, a group led by Loral Corp. raised its bid to $445 million, including $28 million more in cash than the Martin Marietta offer.

A Pension Benefit Guaranty Corp. spokesman said Loral's new bid could draw its support "if the [Pension Benefit Guaranty] people who are reviewing it consider it to be significantly higher." However, he said the agency hadn't made a decision.

Before Loral raised its bid, the Pension Benefit Guaranty said it supported Martin Marrietta's offer because it was the highest bid available. Martin Marietta has bid $396 million in cash and $44 million in preferred stock.

Loral has offered $424 million in cash and $21 million in preferred stock. Of the total, the Carlyle Group and Northrop Corp. would provide $190 million. Under the agreement, Loral would buy the missiles division and Carlyle, a Washington investment bank, would take a 51 percent interest in the aircraft products group. Northrop would hold a 49 percent minority stake, a Northrop spokesman said.

LTV Corp. plans to use proceeds from the sale of LTV Aerospace and Defense Co. to help repay $3.1 billion its steel unit owes to three pension funds.

The sale is crucial in LTV's plans to emerge from more than six years of Chapter 11 bankruptcy protection.

Despite the higher offer from Loral, LTV spokesman Charles Palmer said the company will ask a federal bankruptcy judge in New York to approve the Martin Marietta bid.

He declined to discuss why, but said a bankruptcy court filing outlining the offer should be filed today. LTV had planned to file the request yesterday. Mr. Palmer said the delay wasn't related to the PBGC.

Loral, known as an aggressive buyer in the defense industry, said it is confident the bankruptcy court will support its bid.

Michael Lauer, an analyst with Kidder, Peabody & Co. in New York, predicted the deal would boost Loral's earnings per share by about 10% annually, compared with about 4% for Martin Marietta.

"The impact would be at least three times as great on Loral as on Martin, so Loral has more of an incentive," he said.

However, Paul Nisbet, an analyst with Prudential Securities, said LTV employees would prefer to work for Martin Marietta. Loral, which has made six major defense industry acquisitions since 1985, has a reputation for purging management and installing Loral loyalists.

Mr. Nisbet said that could undermine one of LTV's best assets.

"It's a very sophisticated operation and very capable management people who will accrue to the winning bidder," he said.

Loral stepped into the LTV bidding process in an 11th-hour attempt to keep the purchase alive. A previous offer led by Thomson-CSF Inc. collapsed after meeting staunch opposition in Congress. Lawmakers feared Thomson, controlled by the French government, would siphon vital defense technology overseas.

Under the terms of a definitive agreement, Thomson pledged $20 million to LTV if it did not complete its purchase by July 31. Mr. Palmer said LTV expects to collect.

While the bidding war is pushing up the price for LTV Aerospace, not everyone is happy. Michael Zitterman, a debt analyst in Los Angeles who hold LTV bonds, said the aerospace division could have brought between $700 million and $1 billion if it were spun off from its parent.

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