Litton Industries

Thornton and his associates, who included Robert S. McNamara, Arjay Miller, and Roy Ash, achieved fame during World War II as the Air Force's "Whiz Kids." After the war, the entire group was hired by Ford Motor Company. After two years at Ford, however, Thornton went to work for Howard Hughes and helped establish Hughes Aircraft Company in the semiconductor market. When Thornton tired of Hughes's eccentric business practices, he decided to form his own company. When Thornton organized his company, he did not have any capital. However, he correctly believed that the U.S. Department of Defense would soon be seeking increasingly sophisticated weapons and that there would be room in the defense industry for another large electronics company. Due to the fact that small electronics firms tended eventually to be eliminated or absorbed by larger competitors, Thornton resolved that his company would grow and expand quickly, by making acquisitions if necessary. His company would have to be large if it was to compete with rivals like Howard Hughes. Thornton believed that the success of his plan depended on surrounding himself with financially astute and technically proficient businessmen. Since he could not offer high salaries, he used stock options to induce people to join him. Over the years, the list of "Lidos" (Litton dropouts) read like a Who's Who of prominent American businessmen: Harry Gray built United Technologies Corporation; Dr. Henry Singleton founded Teledyne, Inc.(which later owned a significant stake in Litton); Arjay Miller became president of Ford Motor Company; and Robert McNamara became a Ford president, the U.S. Secretary of Defense, and head of the World Bank. With the help of Roy Ash and Hugh Jamieson, Thornton formed a company called Electro Dynamics Corp., and immediately set out to find the small electronics company on which they would build their empire. Litton Industries, a vacuum tube manufacturer located near San Francisco, California, seemed the ideal choice. The only problem involved raising the $1.5 million necessary to purchase the firm from its founder, Charles Litton. After an agreement with Joseph Kennedy collapsed, Thornton and Ash approached Lehman Brothers, an investment firm. Lehman Brothers had followed Thornton's career since he was a vice-president at Hughes Aircraft and had decided to finance Thornton before he even requested assistance. Joseph Thomas from Lehman Brothers later said that their firm did not invest in Electro Dynamics as much as it invested in the ability of Thornton. Using borrowed money, Thornton acquired Litton Industries in 1954 and purchased a few smaller electronics firms that same year. Thornton's strategy was to continue purchasing electronics companies with high growth potential and build Litton into a company that could meet almost any request for advanced technology. Since Thornton knew Litton stock would eventually increase in value, he paid cash for companies whenever possible. Colleagues claimed that one of Thornton's techniques for arriving at a good price for a company was to continue the negotiations for as long as possible until physical exhaustion caused the other party to yield. After acquiring a company, Thornton allowed the original employees as much freedom as possible, so they could continue conducting the operations that made the company desirable in the first place. By 1961, Litton was the fastest growing company on the New York Stock Exchange. Litton's success during this time was attributed largely to Thornton's business acumen. Although Thornton had built Hughes Aircraft into a leader in the field of semiconductors, he kept his own company out of that market. The semiconductor market crashed in 1961, confirming Thornton's decision. Thornton also refrained from manufacturing transistors, which overcrowded the market in the early 1960s. When Litton stock began selling at 33 times earnings (it was later to reach 75), some analysts suggested that