Northrop to buy US rocket maker
• Defence contractor gets access to Nasa and US military contracts
US defence contractor Northrop Grumman says it will buy missile and rocket maker Orbital ATK for $7.8bn in cash, giving it access to lucrative contracts with Nasa and the US military.
The deal, which comes as North Korea tests missiles, will also help Northrop increase its arsenal of missile defence systems and is a rare departure for the company, which has not made a large acquisition in several years.
Northrop last bought TRW in 2002 for about $7.8bn.
The acquisition, which would establish Orbital as a new, fourth business sector under Northrop Grumman, comes ahead of a likely jump in demand from the planned upgrades of US ballistic systems.
The US air force called in 2016 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 nuclear weapons systems.
Northrop’s offer price of $134.50 per Orbital share represents a premium of 22% over the stock’s Friday close.
Orbital’s shares were trading at $131.75 before the bell.
Northrop will assume $1.4bn 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.
Orbital is one of two companies hired by Nasa to fly cargo to the International Space Station under an initial contract worth up to $3.1bn.
Northrop’s other businesses, such as aerospace systems, mission systems and technology services, provide manned aircraft, electronic warfare systems and network defence services.
The two companies’ complementary offerings would help increase efficiency, boost revenue and save costs, Northrop CE Wes Bush said.
“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 Monday.
On a pro-forma basis, Northrop said it expected 2017 sales of $29.5bn to $30bn.
Northrop is valued at $46.5bn, while Orbital is valued at about $6.3bn.