Cleveland Ship, a little-known company with no history of building ships, has made a surprise bid for Northrop Grumman Corp's military ship building unit, entering an auction dominated by private equity suitors.

Cleveland, formed in 2007 with the intention of building new oil tankers for the Navy, submitted the first-round bid for Northrop's $6 billion shipbuilding division on Sept. 23, Chief Executive Edward Bartlett said Tuesday.

Bartlett, who started his career in the Navy and was a former executive at Eaton Corp, said Cleveland Ship has lined up financing for its multi-billion dollar bid from a group of banks, including one of the largest banks in the United States.

Bartlett, 56, said the bid is structured "conservatively" in order not to burden the Northrop unit with excessive debt,and he believes the bid would meet the expectations of Northrop.

"We went public to introduce ourselves to both the broader defense community and capital markets," Bartlett told Reuters in an interview.

"Because of some of the structure and other aspects, our offer provides superior value to Northrop Grumman and its shareholders," Bartlett said.

Four private equity firms submitted the first round of bids in September and have been conducting due diligence, people familiar with the matter said.

The initial bidding round has narrowed the number of suitors to about five firms, though more parties had expressed interest early in the process, the people said.

The second round of bids is expected later this month.

Cleveland Ship also submitted its bid to Northrop Grumman and its bankers as part of the formal bidding process. But it has yet to sign a nondisclosure agreement with Northrop and start due diligence on the business, Bartlett said.

Northrop declined to comment on Cleveland Ship and other bidders.

Northrop has hired Credit Suisse and Perella Weinberg Partners to consider strategic alternatives for its ship building operations, including a spin-off or sale of the business.

People familiar with the matter have said the unit could be worth about $3 billion in an auction. Spinning off the unit to share holders remains a preferred option due to the complexity of getting a nod from the Navy over new ownership and the prospect of sales taxes potentially in the range of several hundred million dollars, the sources said.

"Cleveland Ship is a 'strategic acquirer' with a clear intention to own the business long term, as an element of our overarching maritime business strategy," the company said in a statement.

"This is as opposed to being a 'financial acquirer' whose intention would necessarily be to put the business through the uncertainty and trauma of the sale process again, likely within the next 24 to 36 months," it said.

Northrop is planning to close its Avondale, Louisiana,shipyards, and offer Newport News operations in Virginia and Ingalls shipbuilding in Mississippi in one transaction.

Bartlett said he has been in Washington nearly every week to meet defense industry experts and government officials and wanted to go public with the bid before committing ton on disclosure.

Bartlett's company, which has no shipbuilding facilities,first approached Northrop in February about the prospect of buying its Avondale operations and using the site to build double-hulled oil tankers.

But the defense contractor indicated it preferred to divest all of the shipbuilding assets in one transaction, and Cleveland Ship followed up in September with a bid to buy all three shipyards, Bartlett said.

A defense finance bill introduced by Sen. Mary Landrieu would require the Navy to replace single-hulled oil vessels with double-hulled tankers, which Bartlett said could create a potential $10 billion to $12 billion market at Avondale over the next decade.

Bartlett said Landrieu's bill would have to pass to make it worthwhile to buy the Louisiana shipyards. If the bill failed,Cleveland Ship would still pursue Northrop's other shipbuilding operations, he said. (Reporting by Soyoung Kim, additional reporting by Megan Davies and Karen Jacobs, editing by Gerald E. McCormick)