Rocket and missile maker Orbital ATK sold for $7.8bn

November 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

November 2017 Issue

American global aerospace and defence technology company Northrop Grumman is to acquire rival Orbital ATK for $9.2bn, the two firms confirmed in mid-September.

Northrop will pay $7.8bn in cash for Orbital and will also assume around $1.4bn in existing net debt. The company will pay $134.50 for each Orbital ATK share, a 22 percent premium to the closing price on Friday 15 September, the last trading day before the deal was announced.

The transaction is expected to close in the first half of 2018 and is subject to customary closing conditions, including regulatory and Orbital ATK shareholder approval. The agreement has been approved unanimously by the boards of directors of both companies. Once the deal has been completed, Northrop has stated that it expects that Orbital ATK will continue as a ‘fourth business sector’ within the newly combined company.

“The acquisition of Orbital ATK is an exciting strategic step as we continue to invest for profitable growth. Through our combination, customers will benefit from expanded capabilities, accelerated innovation and greater competition in critical global security domains. Our complementary portfolios and technology-focused cultures will yield significant value creation through revenue synergies associated with new opportunities, cost savings, operational synergies, and enhanced growth. We look forward to welcoming Orbital ATK’s talented employees to Northrop Grumman, and believe our combined strength will benefit our customers and shareholders,” said Wes Bush, chairman, chief executive and president of Northrop Grumman.

Northrop believes that the deal will be beneficial to both earnings and free cash flow in the first full year after the transaction closes, and will provide pre-tax cost savings of $150m by 2020. On a pro forma basis, Northrop expects to have sales in the range of $29.5bn to $30bn in 2017, based on current guidance. Orbital generates annual revenue of around $4.5bn.

“We are very pleased to announce this agreement with Northrop Grumman. It reflects the tremendous value Orbital ATK has generated for our customers, shareholders and employees. The unique alignment in culture and mission offered by this transaction will allow us to maintain strong operational performance on existing programs while we pursue new opportunities that require the enhanced technical and financial resources of a larger organisation. Our employees will also benefit from greater development and career opportunities as members of a larger, more diverse aerospace and defence enterprise. We will remain focused on operational excellence and execution during and after the transition into Northrop Grumman,” said David Thompson, president and chief executive of Orbital ATK.

The deal is the latest in a series of consolidations to have taken place in the US aerospace manufacturing sector; in September, Aerospace supplier United Technologies Corp agreed a $30bn deal for avionics and interiors maker Rockwell Collins Inc. Earlier this year, Rockwell Collins purchased B/E Aerospace for around $8.6bn.

Northrop is known for its bombers, missiles and drones, whereas Orbital ATK focuses on smaller and medium-sized satellite manufacturing, as well as space launch capabilities. The deal is notable as it comes at a time when tensions between the US and North Korea are particularly high, and one of Orbital ATK’s main areas of expertise is missile defence systems. With the US Air Force pledging to improve its air and space defences in the coming years (the Trump administration has proposed giving the Defence Department tens of billions of dollars in additional funding in the next fiscal year, much of which is expected to survive the budget-making process in Congress) it would seem that by acquiring Orbital ATK, Northrop, already one of the largest contractors to the US military, is further solidifying its position as a key US defence contractor at a time when the US looks set to modernise its arsenal of intercontinental ballistic missiles and defence systems.

Richard Summerfield