Northrop Grumman to buy missile maker Orbital for $7.8
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[September 18, 2017]
(Reuters) - U.S. defense
contractor Northrop Grumman Corp said on Monday it would buy missile and
rocket maker Orbital ATK Inc for about $7.8 billion in cash, giving it
access to lucrative contracts with NASA and the U.S. 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 about
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 U.S. ballistic systems.
The Air Force last summer called for proposals to replace its aging
nuclear cruise missiles and intercontinental ballistic missile (ICBM)
system as the military moves ahead with a costly modernization of older
atomic weapons systems.
Northrop's offer price of $134.50 per Orbital share represents a premium
of 22 percent over the stock's Friday close. Orbital's shares were
trading at $131.75 before the bell.
Northrop will assume $1.4 billion in Orbital's net debt and the deal is
expected to close in the first half of 2018.
Orbital's main businesses of missile defense, 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 $3.1
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UAV helicopter build by Northrop Gruman is on deck aboard the soon
to be commissioned littoral combat ship USS Coronado during a media
tour in Coronado, California April 3, 2014. REUTERS/Mike Blake/File
Northrop's other businesses, such as aerospace systems, mission systems and
technology services, provide manned aircraft, electronic warfare systems and
network defense services.
The two companies' complementary offerings will help 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 Monday.
On a pro-forma basis, Northrop said it expects 2017 sales of $29.5 billion to
Perella Weinberg Partners LP is the financial adviser to Northrop, while
Citigroup is advising Orbital.
(Reporting by Arunima Banerjee and Supantha Mukherjee in Bengaluru; Editing by
Sriraj Kalluvila and Sai Sachin Ravikumar)
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