Defense contractor Northrop Grumman Corp is nearing an agreement to buy Orbital ATK Inc for more than US$7.5 billion, the Wall Street Journal reported, citing people familiar with the deal.
An announcement might have come as soon as yesterday, the newspaper reported.
A merger would broaden Northrop’s portfolio of aerospace and defense electronics, while bolstering its expertise in composites and rocket propulsion as it competes with Boeing Co to replace the US ground-based nuclear defense system.
Buying Orbital would expand Northrop’s product line-up, especially in space.
The contractor is competing with Boeing to develop the next ground-based intercontinental ballistic missile (ICBM) defense system in the US, a program that could be worth as much as US$85 billion.
Northrop had won a contract to build the next generation B-21 stealth bomber.
A deal would “create a broader company while adding potentially to the strength in areas like potentially the ICBM modernization. It adds to their technological capabilities,” Teal Group director of corporate analysis Philip Finnegan said. “It would take Northrop much more into areas like space. It would take them into areas like munitions.”
Northrop spokesman Mark Root declined to comment and a representative for Orbital could not immediately be reached.
Orbital has designed propulsion systems on Minuteman III missiles in the past and buying the company could allow Falls Church, Virginia-based Northrop to retain some of the ICBM business even if it were to lose the overall contract, Bloomberg Intelligence aerospace and defense analyst Douglas Rothacker said.
While it is hard to pin Northrop’s interest to current events, the tension over North Korea’s missile tests could make Dulles, Virginia-based Orbital more attractive, Rothacker said.
“Clearly, ICBM missile defense is going to be a focus in coming years,” he said.
The Journal said it was unable to learn terms of the deal, but estimated its value at more than US$7.5 billion, based on Orbital’s US$6.3 billion market capitalization and typical deal premiums.
Northrop is more than seven times larger, with a stock-market value of about US$46.5 billion.
Orbital competes to hoist payloads to space with SpaceX Exploration Technologies Corp’s Falcon 9 and United Launch Alliance’s Atlas family of rockets.
Northrop chief executive officer Wesley Bush told investors during its second-quarter earnings call in July that he was looking for acquisition opportunities to expand the contractor’s business. That would mark a change in direction for a company that had focused on shareholder returns through stock buybacks and dividends.
“It really is unexpected. It’s interesting,” Finnegan said. “An acquisition like this is a big shift. They’ve been very aggressive in things like share repurchase, increasing dividends. Clearly they saw an opportunity and took advantage.”
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