UPDATE 1-Northrop aims to buy back 25 pct of shares by end of 2015

Thu May 16, 2013 5:50pm EDT

WASHINGTON May 16 (Reuters) - U.S. arms maker Northrop Grumman Corp said on Thursday it plans to buy back 25 percent of its outstanding shares by the end of 2015, after its board of directors approved $4 billion in further share repurchases.

The board's action increased the total amount available for share buybacks to $5 billion. Northrop said it had about 235 million shares outstanding at the end of March.

"Today's action and yesterday's dividend increase reflect confidence in our performance and our belief that our share repurchase program continues to create value for our shareholders," said Northrop Chief Executive Wes Bush.

Northrop on Wednesday increased its dividend by 11 percent to 61 cents per share.

Northrop said the moves were part of an effort to increase shareholder value that began with the sale or spin-off of several units in recent years.

Northrop shares were 48 cents higher at $79.50 in post-market trading after closing at $79.02 on the New York Stock Exchange.

Northrop spokesman Randy Belote declined comment when asked if the share repurchases were aimed at preparing the company for a merger or sale.

"We don't comment on any strategic options," Belote said.

Top Pentagon officials have said they expect consolidation among smaller and mid-sized companies in the U.S. defense industry given projected declines in spending.

Thus far, they have said that the number of companies at the top of the sector is about right, after a big wave of consolidation during the 1990s, but officials say they may have to revisit the matter if massive additional defense spending cuts remain in force.

Northrop said the share purchases would take place at management's discretion and be subject to market conditions, in the open market or in privately negotiated transactions.

Cash balances and free cash flow would be used to fund the repurchases, Northrop said. It said it may issue debt under its current shelf registration in order to support accelerated share repurchases.

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