On Monday, shares of Orbital ATK OA are soaring, up over 20% in morning trading after it was announced that defense giant Northrop Grumman NOC would be buying the company for $7.8 billion in cash while assuming $1.4 billion in debt. NOC stock is up about 1.5% in morning trading as well.
Orbital shareholders are set to receive $134.50 per share, which represents a 22% premium to its Friday close of $110.04. Orbital has made a name for itself designing and manufacturing space, defense, and aviation-related systems, in particular rocket motors that power missiles and target launch vehicles that are used during missile defense systems tests.
"The acquisition of Orbital ATK is an exciting strategic step as we continue to invest for profitable growth," said Wes Bush, Northrop's chief executive, in a statement. "Through our combination, customers will benefit from expanded capabilities, accelerated innovation and greater competition in critical global security domains."
Northrop has one of the largest footprints in the defense industry today, and is one of the Pentagon's leading suppliers. Along with rival Boeing BA , the company is working with the Air Force on the Ground Based Strategic Deterrent program, designing a new intercontinental ballistic missile system. And, Northrop won a highly-coveted contract to develop the B-21 stealth bomber.
With Orbital, Northrop's presence could grow even bigger. Along with its missile designs, Orbital holds a contract with NASA to resupply the International Space Station with its Antares rocket. According to The LA Times , the company has also developed a rocket called the Pegasus that can be attached to its Stargazer L-1011 airplane, as well as the still-in-development Next Generation Launcher (NGL), which Orbital hopes to get certified by the U.S. Air Force.
The Northrop-Orbital acquisition, which is subject to regulatory approval, is expected to close in the first half of 2018. And after the deal closes, Orbital will operate as its own business segment within Northrop, at least at first, said Mr. Bush.
As a whole, the defense industry has undergone some major changes recently, and this deal comes soon after another huge acquisition: United Technologies' UTX$30 billion purchase of Rockwell Collins COL . However, defense stocks are responding positively, with the iShares U.S. Aerospace & Defense ETF ITA having risen over 21% so far this year.
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