Northrop Grumman to buy missile maker Orbital for US$7.8bil

BENGALURU: US defence contractor Northrop Grumman Corp said it would buy missile and rocket maker Orbital ATK Inc for US$7.8bil in cash, giving it access to lucrative contracts with NASA and the US Army.

The deal, which comes as North Korea tests threatening missiles, will also help Northrop increase its arsenal of missile defense systems and is a rare departure for the company, which has not made a large acquisition in several years. It last bought TRW Inc in 2002 for US$7.8bil.

The acquisition, which would establish Orbital as a new, fourth business sector under Northrop, also comes ahead of a likely jump in demand from the planned upgrades of US ballistic systems.

The Air Force last summer called for proposals to replace its ageing nuclear cruise missiles and intercontinental ballistic missile system as the military moves ahead with a costly modernisation of older atomic weapons systems.

Northrop’s offer price of US$134.50 per Orbital share represents a premium of 22% over the stock’s Friday close. Orbital’s shares were trading at US$131.75 before the bell.

Northrop will assume US$1.4bil in Orbital’s net debt and the deal is expected to close in the first half of 2018.

Orbital’s main businesses of missile defence, government satellites and the prospect to develop an in-orbit satellite servicing business ”clearly make sense” for Northrop, analysts at Stifel said on Sunday following news reports of a potential deal.

Orbital is one of two companies hired by NASA to fly cargo to the International Space Station under an initial contract worth up to US$3.1bil.

Northrop’s other businesses, such as aerospace systems, mission systems and technolo- gy services, provide manned aircraft, electronic warfare systems and network defense services.

The two companies’ complementary offerings wouldhelp increase efficiency, boost revenue and save costs, Northrop chief executive Wes Bush said in a statement.

“Given that Northrop already operates in the space field, it is possible that there could be some overlapping activity or increased vertical integration that could prompt regulatory scrutiny,” Vertical Research Partners analyst Robert Stallard said in a client note on yesterday.