The Last Supper

1
The Last Supper

• Ajay Bangalore-Harish
• Marc Grossman
• Jingqing Huang
• Christine Winiarz
• Assisted by Chris Walker

2
Introduction

• The Last Supper
• DOD held a dinner to warn the Aerospace
  companies the last supper.
• DOD is cutting defense budget, foresee fewer
  players in the future field
• Kent Kresa is the CEO of Northrop needs to
  decide what direction to take his company

3
What was driving the DOD to make such a radical
suggestion?
4
What was driving the DOD to make such a radical
suggestion?

• End of Cold War, accompanied by massive defense
  spending cuts
• Warn the companies
• Enable self structure rather than all go out of
  business
• Give the opportunity for companies that are
  heavily defense oriented the opportunity to
  partner with those that are less defense oriented
• The DOD had previously bailed out Lockheed and
  now they need to let the aerospace companies know
  that bail outs wont happen again.
• Ties of friendship they all know each other and
  likely wish each other the best. They hope the
  companies to be able to split the market and
  negotiate rather than all go for the same piece
  of pie.

5
What are the advantages and disadvantages of this
suggestion for the nation?

• Advantages

• Disadvantages

6
What are the advantages and disadvantages of this
suggestion for the nation?

• Advantages

• Disadvantages

• Gives fair warning, allows companies to
  self-restructure
• Maintain a defense industry in the United States
  Controlled shrinkage rather than collapse
• Forces greater efficiency in both the defense
  materials production and corporate structure.
• Bidding war for civilian contracts. This warning
  will likely raise the value of civilian contracts
  in the eyes of the companies, and thus they will
  be bid at a lower price.
• Layoffs Highly trained individuals in the
  defense industry will be forced into other jobs.
  The market will place them at the most efficient
  location rather than in an artificial, government
  created market.

• Drives the market value of companies down.
  Shareholders will worry that the companies are
  pending death.
• Market Confidance
• Unemployment layoffs after mergers and closures.
  (11 1.5)

7
Given this directive, what choices did Kent have
for his company?
8
Given this directive, what choices did Kent have
for his company?

• Eat
• Acquire companies with a significant share of
  civilian markets in order to diversify.
• Acquire companies that are heavily defense linked
  in an effort to dominate the shrinking defense
  industry.
• Be Eaten
• Its a question of protecting your people and
  their shares. Make sure youre well valued during
  acquisition.
• Close up Shop
• Slowly lay off employees, divest company sectors
  and sell assets.

9
What are the advantages and disadvantages of
these choices?
10
What are the advantages and disadvantages of
these choices?

• Eat
• From the Defense Side
• Concentrate on the DOD business acquire another
  large defense player in order to gain product
  diversification and negotiation power.
• It is unknown as to what extent the defense
  industry will cut funding. If they cut it
  completely, there will be nothing left and buying
  a defense industry company will not look so
  clever in hindsight.
• DOD spending isnt as affected as civilian
  funding during economic downturns and thus in
  some sense it is the safe bet.
• From the Civilian Side
• DOD spending isnt as affected as civilian
  funding during economic downturns. Acquiring a
  company that derives a large percentage of their
  business from the civilian market is good if the
  economy stays strong, but prone to the risks of
  an economic downturn.
• Not as likely to get large defense contracts.
• Assuming economy keeps up, there will always be
  growth

11
What are the advantages and disadvantages of
these choices?

• Be Eaten
• Advantages
• Its easier. Laissez-faire type attitude
• He can retire
• Shareholders could do well if he makes a good
  sell.
• Disadvantages
• Disappointing on a personal level.
• Close up Shop
• Wasteful of potential

12
What factors should he consider when making a
decision?
13
What factors should he consider when making a
decision?

• Current cash reserves
• If Northrop had cash on hand its a nice time to
  buy others. If not then its a good time to be
  bought.
• DOD is straightforward now, theyre likely to be
  the same in future.
• Political future of country
• DOD spending is heavily dependent on the
  political climate which changes rapidly.
• They have good relationships in defense industry,
  and dont have many contacts in the civilian
  industry yet.
• Investigate past and future trends of civilian
  aerospace market.
• Some parts of the company will be well adapted to
  switch from defense contracting to the civilian
  markets. Others will not.

14
What should Kent do and why? Consider Kents
vision for Northrop and possible competitor
response.
15
What should Kent do and why? Consider Kents
vision for Northrop and possible competitor
response.

• Kents vision for the company predicted premiums
  on intelligence, long-range strike ability,
  precision, and survivability
• Northrops skills, resources and relationships
  make it an ideal candidate for dominating the new
  defense market.
• Kent should try to eat another large defense
  company and position the merged company to be a
  dominant player in the new market
• Possible competitor response
• Other companies will be looking to partner with
  Northrop because of their unique skill base, or
  they will also be trying to obtain larger market
  share in the defense market
• They will be trying to become a large player in
  the civilian market and exit the defense market