Global security company Northrop Grumman Corp. (NOC, Financial) announced Sept. 18 it is buying missile maker Orbital ATK Inc. (OA, Financial) for $7.8 billion in cash.
According to the terms of the deal, Northrop will pay $134.50 per share, which is approximately a 22% premium to Orbital’s closing price of $110.04 on Friday. In addition, the company will assume $1.4 billion of Orbital’s net debt, bringing the total price tag to $9.2 billion.
Following the announcement, Orbital’s shares soared more than 19% in premarket trading to open at $131.90 on Monday. Northrop’s stock remained unchanged in premarket trading but was up a modest 1.5% shortly after the opening bell at $270.94.
In a statement, Wes Bush, Northrop Grumman’s chairman, CEO and president, expressed his excitement for the acquisition, saying customers will benefit from “expanded capabilities, accelerated innovation and greater competition in critical global security domains.”
“Our complementary portfolios and technology-focused cultures will yield significant value creation through revenue synergies associated with new opportunities, cost savings, operational synergies and enhanced growth,” Bush said. “We look forward to welcoming Orbital ATK’s talented employees to Northrop Grumman and believe our combined strength will benefit our customers and shareholders.”
Upon closing the deal in the first half of 2018, Northrop Grumman will establish Orbital as its fourth business sector, joining its existing aerospace systems, mission systems and technology services segments. Orbital ATK President and CEO David Thompson said the deal will give the company and its employees new opportunities.
“The unique alignment in culture and mission offered by this transaction will allow us to maintain strong operational performance on existing programs while we pursue new opportunities that require the enhanced technical and financial resources of a larger organization,” Thompson said. “Our employees will also benefit from greater development and career opportunities as members of a larger, more diverse aerospace and defense enterprise.”
As a result of the transaction, Northrop Grumman anticipates pro forma 2017 sales between $29.5 billion and $30 billion based on its current guidance. In addition, the deal is expected to be accretive to earnings per share and free cash flow in the first full year after the deal closes and generate approximately $150 million in annual pre-tax cost savings by 2020.
With 0.72% of outstanding shares, Jim Simons (Trades, Portfolio) is Northrop Grumman’s largest guru shareholder. A total of nine gurus own the stock.
Of the nine gurus invested in Orbital, First Eagle Investment (Trades, Portfolio) has the largest holding with 8% of outstanding shares. Steven Cohen (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and George Soros (Trades, Portfolio) established positions in the second quarter.
Disclosure: I do not own any stocks mentioned.
