Shares of Orbital ATK (NYSE: OA) are soaring today, up 21% as of 11:41 a.m. EDT to around $132.73 per share, following the announcement that fellow defense contractor Northrop Grumman (NYSE: NOC) has agreed to acquire the company for $134.50 per share in cash.
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Northrop Grumman has offered to acquire all the outstanding shares of Orbital ATK in an all-cash deal valuing the company at $7.8 billion, plus the assumption of $1.4 billion of net debt. The companies expect the transaction to close in the first half of next year, assuming regulatory and shareholder approval. Northrop Grumman has secured fully committed debt financing for the transaction and expects to put permanent funding in place before closing.
Northrop Grumman CEO Wes Bush stated that the acquisition was an "exciting strategic step as we continue to invest for profitable growth." In the near term, the company sees the deal being accretive to earnings and cash flow per share in the first full year while delivering an estimated $150 million of cost savings by 2020. Furthermore, Orbital ATK has a growing revenue backlog, which stood at $15.4 billion at the end of last quarter, up 4% year over year.
In addition to that visible backlog, Bush noted that over the longer term, "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." That ability to grow at a faster pace was one of the draws for Orbital ATK. CEO David Thompson stated that because of this transaction, his company could "pursue new opportunities that require the enhanced technical and financial resources of a larger organization."
Barring a competing bid or regulatory hang-up, this deal looks as good as done given that Northrop already has the financial resources in place to close the transaction. The market certainly thinks this is the case, as Orbital's stock was quickly bid up close to Northrop's offer.
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