The deal is likely to be finalized on Monday, however, it could draw scrutiny from the Pentagon given the vertical integration related issues with weapon systems developed by Northrop Grumman and Orbital ATK.
As per a source familiar with the transaction, Northrop Grumman Corp, a U.S. defense contractor is poised to acquire missile and rocket maker Orbital ATK Inc.
The deal midst North Korea firing nuclear tipped missiles over Japan last week, which has drawn focus on missile defense system in the Korean peninsula.
With Orbital’s stock market value of $6.3 billion and $1.4 billion of long-term debt, the deal’s final value is likely to exceed $7.7 billion.
While Orbital did not immediately respond to a request for comment, Northrop Grumman declined to comment.
According to Byron Callan, an analysts with Capital Alpha Partners LLC, Orbital’s rocket motors, missiles and electro-optical countermeasure offerings would enlarge Northrop’s product basket.
The deal is noteworthy not only because it boost Northrop’s repertoire, but also because it represents a departure from the company’s focus on returning earnings to shareholders.
Its been years since Northrop Grumman acquired a large rival.
Going by Orbital’s 2016’s financials, the deal would provide Northrop Grumman, Orbital ATK’s contracts with NASA and its contracts with the U.S. Army. It would provide Northrop more than $4.4 billion in annual revenue.
Based on Friday’s closing stock price, Northrop was valued at $46.5 billion.
The acquisition price could exceed $7.5 billion if a typical premium was attached to it, said the Wall Street Journal said in a report.
Another reason for the deal, could be the Pentagon’s focus on rebuilding its missile defenses. Last year, the Air Force had asked the defense industry for proposals to replace its aging nuclear cruise missiles and intercontinental ballistic missile system.
The Trump Administration is pushing to modernize the country’s aging atomic weapons systems.
As a result, in August, Northrop won a $328 million contract to keep developing a replacement for the Minuteman III intercontinental ballistic missile system for the U.S. Air Force.
Incidentally, Northrop is also the prime contractor for the B-21 bomber; it is also the maker of the Global Hawk unmanned aerial vehicle.
Orbital is a subcontractor for composite structures on the B-21.
Given the vertical integrations within the B-21 program, the deal could potentially spark concerns at Pentagon.