Northrop Grumman to Buy Orbital ATK for $7.8 Billion -- 2nd Update
September 18 2017 - 8:35AM
Dow Jones News
By Dana Mattioli, Doug Cameron and Cara Lombardo
Northrop Grumman Corp. on Monday said it agreed to buy Orbital
ATK Inc. for $7.8 billion, as acquisition activity in the aerospace
industry ramps up.
Northrop agreed to pay $134.50 a share for Orbital, a roughly
22% premium to Friday's closing price of $110.04. Including $1.4
billion in assumed debt, the deal carries a total price tag of
about $9.2 billion.
The two defense contractors said Monday their boards approved an
all-cash tie-up. The Wall Street Journal first reported the
companies were nearing a deal Sunday.
The news sent Orbital shares up 19.68% premarket Monday. Orbital
has a market value of $6.3 billion while Northrop has a market
capitalization of more than $45 billion.
Perella Weinberg Partners LP is acting as exclusive financial
adviser to Northrop Grumman. Citigroup is acting as exclusive
financial adviser to Orbital ATK.
The impending deal, which the companies expect to close in the
first half of 2018, 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.
Purchasing Orbital will add to Northrop Grumman's existing focus
on military aircraft and space systems, expanding the franchise
with more fast-growing missile-defense business.
Northrop Grumman said plans to establish Orbital as a distinct
business sector and expects it to generate 2017 sales of about $30
billion. The company expects the deal to be accretive to earnings
per share in its first full year and yield annual cost savings of
$150 million by 2020.
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.
Orbital will owe Northrop Grumman a $275 million termination fee
if the deal falls through, according to company filings.
Write to Dana Mattioli at dana.mattioli@wsj.com, Doug Cameron at
doug.cameron@wsj.com and Cara Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
September 18, 2017 08:20 ET (12:20 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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