Northrop Nears $7.5 Billion Deal -- WSJ

Purchase of Orbital ATK would boost focus on military aircraft and space systems

By Dana Mattioli and Doug Cameron

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 18, 2017).

Northrop Grumman Corp. is nearing a deal to buy Orbital ATK Inc. in a transaction that could be worth upward of $7.5 billion, as acquisition activity in the aerospace industry ramps up.

An all-cash tie-up between the two defense contractors could be announced Monday, according to people familiar with the matter.

Terms of the transaction couldn't be learned, but with a typical takeover premium, it could value Orbital, which currently has a market value of $6.3 billion, at more than $7.5 billion. Northrop has a market capitalization of more than $45 billion.

The impending deal comes on the heels of another big aerospace union just announced earlier this month when United Technologies Corp. agreed to buy Rockwell Collins Inc. for about $23 billion.

A purchase of Orbital would add to Northrop Grumman's existing focus on military aircraft and space systems, expanding the franchise to include more fast-growing missile-defense business.

Orbital provides space rocket motors and other parts for offensive and defensive missile systems, as well as satellites for military and commercial space operations. It was formed in 2015 from the merger of two missile and space specialists, Alliant Techsystems and Orbital Sciences. Orbital ATK employs about 13,000 and is targeting sales this year of $4.6 billion.

Its role in space and missile systems has led some analysts to view the company as a potential takeover target for big customers such as Boeing Co., Lockheed Martin Corp., or Northrop.

Northrop, which beat out Boeing and Lockheed to build the new B-21 Raider long-range bomber, is also competing to build a new fleet of intercontinental ballistic missiles for the U.S.

Northrop is vying with Boeing for the Ground-Based Strategic Deterrent nuclear missile program, and has joined with Orbital and fellow rocket maker Aerojet Rocketdyne Inc. during the current development phase of the $80 billion program.

Domestic and international defense budgets are starting to climb because of tensions in the Middle East, Eastern Europe and East Asia, with missile defense a priority for many nations.

Meanwhile, some defense contractors are seeking to become more vertically integrated, bringing production in house to give them better control of the supply chain and an ability to capture extra profits from repair work; this deal would fit into that pattern as well.

The planned purchase of Orbital marks a departure for Northrop, which has focused heavily on share buybacks, retiring around 25% of its stock over the past three years.

A deal involving the big prime defense contractors may be less likely to attract antitrust scrutiny than other proposed mergers because of their limited product overlap, though the Pentagon has in recent years become more involved in scrutinizing transactions.

Write to Dana Mattioli at dana.mattioli@wsj.com and Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

September 18, 2017 02:47 ET (06:47 GMT)

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