Northrop Grumman to Pay $7.8 Billion in Cash for Orbital ATK

Defense firm Northrop Grumman Corp. (NYSE: NOC) said this morning that it has entered a definitive agreement with Orbital ATK Inc. (NYSE: OA) under which Northrop will acquire Orbital for $134.50 per share in cash. The cash value of the deal is $7.8 billion, and Northrop also will acquire $1.4 billion in Orbital debt, bringing the total value of the acquisition to $9.2 billion.

The transaction is expected to close in the first half of next year, pending customary closing conditions, regulatory approval and approval by Orbital shareholders. Northrop said it has fully committed debt financing and expects to have permanent financing in place prior to closing.

The per-share price represents a premium of about 22% to Orbital’s closing price on Friday, and the company’s shares traded at a 52-week high this morning.

The acquisition follows by less than a month the announced acquisition of Rockwell Collins Inc. (NYSE: COL) by United Technologies Corp. (NYSE: UTC) for around $23 billion, and continues what many observers see as a consolidation in the aerospace and defense sector.

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Northrop is the prime contractor for the U.S. Air Force’s new B-21 long-range bomber and already partners with Orbital and Aerojet Rocketdyne in a competition to build the a ground-based strategic missile system for the U.S. Department of Defense.

Orbital is primarily a maker of rocket engines for military weapons systems and also makes satellites for commercial and military uses. The company also employs 1,600 of its total workforce of 13,000 at a small-caliber ammunition plant in Independence, Missouri. Orbital struck a three-year deal earlier this year to supply ammo to Vista Outdoor Inc. (NYSE: VSTO), which was spun out of Alliant Techsystems in 2015 at the same time that Alliant’s aerospace and defense groups combined to form Orbital ATK.

While there are rumblings for passenger jet makers like Boeing and Airbus over the planned merger of UTC and Rockwell, there do not appear to be similar issues with the Northrop-Orbital deal. The two firms’ product offerings overlap rather than complement and strengthen one particular product line. Still, the two deals are likely to be linked in antitrust regulators’ minds, and if one goes down, the other’s chances of being completed drop sharply.

Northrop’s stock traded up about 1.4% at $270.89 in the late morning Monday, in a 52-week range of $210.60 to $274.61. The stock’s 12-month consensus price target is $280.50.

Orbital’s stock traded up about 21%, at $133.00 in a 52-week range of $71.52 to $133.39, a new high set this morning. The stock closed at $110.04 last Friday. The 12-month price target is $116.70.

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