Northrop Grumman in $7.8 Billion Deal to Buy Missile Maker Orbital ATK
Mergers and AcquisitionsNorthrop Grumman in $7.8 Billion Deal to Buy Missile Maker Orbital ATKReutersUpdated: 6:31 AM ET | Originally published: 6:27 AM ET
U.S. defense contractor Northrop Grumman said on Monday it would buy missile and rocket maker Orbital ATK for about $7.8 billion in cash.
The offer of $134.50 per Orbital share represents a premium of 22% over the stock's Friday close.
Northrop (noc) will also assume $1.4 billion in Orbital's net debt, the companies said.
Reuters on Sunday reported about the potential deal, citing a person familiar with the transaction.
The deal comes as the firing of missiles by North Korea in recent months has focused attention on missile defense systems.
Orbital's rocket motors, missiles and electro-optical countermeasure product lines would enlarge Northrop's offerings to its largest customer, the U.S. Department of Defense, analyst Byron Callan of Capital Alpha Partners said in a research note on Sunday.
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The deal is noteworthy not only because it boosts Northrop's exposure to missile defense, but also because the company has not bought a large rival in many years. It would also represent a departure from a focus of returning earnings to shareholders.
Orbital ATK has contracts with NASA as well as the U.S. Army and the deal would give Northrop more than $4.4 billion in annual revenue according to Orbital's 2016 financials.
Despite infrequent strategic mergers, Northrop has not shied away from bold corporate actions to please investors. In 2011 Northrop spun off its Huntington Ingalls Industries (hii) shipbuilding business to shareholders. In 2009, it sold its government services business, TASC.
Northrop's las t buying spree more than a decade ago included the 2002 purchase of TRW for about $7.8 billion.
Based on Friday's closing stock price, Northrop was valued at $46.5 billion. The acquisition price could exceed $7.5 billion if a typical premium was attached to it, the Wall Street Journal said in a report published earlier on Sunday.
Another reason for the deal could be the Pentagon's efforts to rebuild missiles defenses. The Air Force had asked the defense industry last summer for proposals to replace the aging nuclear cruise missiles and intercontinental ballistic missile system as the military moved ahead with a costly modernization of its aging atomic weapons systems.
In August, Northrop received a $328 million contract to continue developing a replacement of the aging Minuteman III intercontinental ballistic missile system for the U.S. Air Force.
Northrop is also the prime contractor for the B-21 bomber as well as the maker of the Global H awk unmanned aerial vehicle.
Orbital is a subcontractor for composite structures on the B-21, and Callan of Capital Alpha Partners said the deal might spark concerns at the Pentagon because of vertical integration within that program.
So far this year Orbital's stock has increased 25% as investors have eyed an increase in U.S. defense spending.
Earlier in September, aerospace supplier United Technologies (utx) agreed to buy avionics and interiors maker Rockwell Collins (col) in $30 billion deal that would be the largest in the industry's history.Source: Google News