Northrop Grumman Corp. (IW 500/44) agreed to buy Orbital ATK Inc. for $7.8 billion, bolstering the missile and space businesses of one of the U.S.’s largest defense contractors.
Orbital holders will receive $134.50 a share in cash, the companies said in a statement Monday. The price is 22% above the stock’s closing level Friday. Northrop also will assume $1.4 billion in net debt.
The deal for Orbital expands Northrop’s product line-up in areas such as rocket propulsion, composites and munitions. The announcement follows another major aerospace transaction after United Technologies Corp. said this month that it will buy Rockwell Collins Inc. for $23 billion.
Northrop, known for its Global Hawk drones, recently won a contract to build the next generation B-21 stealth bomber and does significant work on the F-35 fighter jet. The contractor is competing with Boeing Co. to develop the next ground-based intercontinental ballistic missile defense system in the U.S., a program that could be valued at as much as $85 billion.
Orbital jumped 20% to $131.99 before the start of regular trading in New York. Northrop was unchanged at $267.03.
The Orbital deal will “create a broader company while adding potentially to the strength in areas like potentially the ICBM modernization,” Philip Finnegan, director of corporate analysis for Teal Group, said before the tie-up was announced. “It adds to their technological capabilities.”
Orbital, based in Dulles, Va., competes to hoist payloads to space with SpaceX Exploration Technologies Corp.’s Falcon 9 and United Launch Alliance’s Atlas family of rockets. The company has also designed propulsion systems on Minuteman III missiles in the past, giving Northrop potentially greater exposure to ICBM business.
The deal will enable Northrop to increase growth by expanding its offerings and joining two “complementary portfolios and technology-focused cultures,” Chief Executive Officer Wesley Bush said in the statement. It is expected to add to earnings in the first full year after closing, and to yield annual pretax cost savings of $150 million by 2020, the companies said.
The transaction is expected to be completed in the first half of 2018. It is subject to customary closing conditions, including approval by regulators and Orbital shareholders.
The acquisition marks a shift for Falls Church, Va.-based Northrop, which has recently focused on shareholder returns through stock buybacks and dividends. Bush hinted at the change in July, telling investors during the second-quarter earnings call that he was looking for acquisition opportunities to expand the contractor’s business.
Bankers from Perella Weinberg Partners LP are advising Northrop Grumman, while Cravath, Swaine & Moore LLP is the company’s legal counsel. Citigroup is advising Orbital, with Hogan Lovells US LLP as legal adviser.
By Richard Clough and Julie Johnsson