Like an F-14 fighter launched from the deck of an aircraft zTC carrier and climbing toward the clouds, Grumman Corp.'s stock has soared more than 76 percent in the past week, and the indications are that it may go even higher.
Grumman shareholders are the chief beneficiaries of a bidding war for Grumman that erupted this week between
Bethesda-based Martin Marietta Corp. and Northrop Corp. of Los Angeles.
Grumman's shares jumped $3 yesterday to close at $64.75, well above Northrop's Thursday bid of $60 a share -- or $2.04 billion -- and an indication that Wall Street expects the bidding to go even higher. Northrop's bid came three days after Martin Marietta said it would pay $55 a share ($1.9 billion) for control of Grumman, which made a name for itself as the primary supplier of carrier-based aircraft for the Navy.
But how high will the stock go?
Paul H. Nisbit, president of JSA Research in Newport, R.I., which concentrates on the defense and aerospace industry, laughed and said, "Earlier this week I would have said $55, the Martin offer, but now it's anybody's guess."
Some analysts are talking about the possibility that Grumman stock might reach $70, but Mr. Nisbit says $80 is possible.
"When you extrapolate what Northrop is saying," Mr. Nisbit said, "the indications are that they may pay as much as $2.8 billion for Grumman; that's $80 a share.
"The veiled threat [from Northrop] to Martin Marietta is: 'Go ahead and bid higher. We're ready to go to $80.' "
Northrop has said that it has financing commitments totaling $2.8 billion from Chase Manhattan Bank and Chemical Bank.
Asked whether Northrop was prepared to raise its $60 offer for Grumman, Richard B. Waugh Jr., Northrop's chief financial officer, first said he could not comment. But then he said, "All I can say is, read the tea leaves between what our chairman is saying and what I'm saying."
Byron Callan, an analyst with Merrill Lynch & Co., said in a report released yesterday that Northrop could afford to pay $70 a share for Grumman and still maintain its 1994 earnings estimate of $4.15 a share. Mr. Nisbit said that $80 is well above Grumman's true value.
He said the company has been shrinking in recent years as most of its aircraft production has ended and is expected to continue to shrink.
"For Martin Marietta to raise its bid to $65," Mr. Nisbit said, "that would be an 18 percent increase. I would not be surprised if Norman Augustine [chairman and chief executive of Martin Marietta] said, 'We are not bidding any higher.' "
Officials of all three companies declined to comment yesterday on what moves might lie ahead.
Mr. Nisbit said he thinks Northrop is more desperate to make an acquisition than Martin Marietta is. Martin Marietta has made several major acquisitions in recent years, including General Electric Corp.'s aerospace division for $3.05 billion and the Atlas rocket production arm of General Dynamics Corp for $208.5 million, but Northrop has been shut out in its previous efforts to expand via acquisition.
In recent years, Northrop lost out in the bidding for General Dynamics' fighter plane division, the missile division of McDonnell Douglas Corp. and the Bethesda-based Federal Systems division of International Business Machines Corp.
As the defense industry continues to consolidate to adjust to the shrinking Pentagon budget, there are fewer companies for Northrop to choose from, Mr. Nisbit said.
"This scarcity factor puts a higher value on Grumman for Northrop than it does for Martin Marietta."
Grumman's nearly 18,000 workers also may have a say in who ends up owning the company.
The workers own about one-third of the stock, said William McDonald, a Grumman spokesman.
Their vote could go to the company that offers them the most job security.