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Northrop Grumman-Orbital ATK Merger Gets Shareholder Approval


Northrop Grumman Corporation’s NOC pending acquisition of Orbital ATK OA finally got the approval from the latter’s shareholders on 29th Nov. Earlier, in September, the two defense majors inked a take-over deal worth $9.2 billion, by which Northrop Grumman agreed to buy Orbital ATK by the first half of 2018.

Notably, shareholders of Orbital ATK holding over 99% of common stock present at the meeting or represented by proxy, voted in favor of this merger agreement. This, in turn, represents 79% of the total number of outstanding shares of Orbital ATK’s common stock as of Oct 10, 2017.

Benefits of the Acquisition

Northrop Grumman continues to enjoy strong presence in Air Force, Space & Cyber Security programs. The company’s product innovation and focus on strengthening its ISR wing is anticipated to help maintain a stable earnings stream, amid rapidly changing requirements of the defense landscape.

With the Orbital ATK buyout, Northrop Grumman is expected to benefit from the former's rocket motors, missiles and electro-optical countermeasure product lines. According to Wes Bush — chairman, chief executive officer and president of Northrop Grumman — the merger will offer increased competition, greater innovation and a broader set of capabilities that would aid its customers in solving their toughest challenges.

Furthermore, Orbital ATK’s knowledge and expertise in satellites, spacecraft components and commercial space launch system will expand Northrop Grumman’s product offering, thereby providing tough competition to the existing defense companies.

Per Orbital ATK’s 2016 financials, the company's contracts with the NASA and the U.S. Army is expected to boost Northrop Grumman’s product portfolio and rake in more than $4.4 billion, in the form of annual revenues.

Earlier while announcing the deal Northrop Grumman had said that post merger this new business unit will be accretive to its earnings per share and free cash flow per share, in the second half of 2018.

Also, the merger will be accretive to Northrop Grumman’s earnings per share and free cash flow in the first year of acquisition and lead to annual cost savings of nearly $150 million by 2020.

Incidentally, President Trump has requested to increase fiscal 2018 defense spending by 10% from the present level. Considering this, we expect the combined company to hold a larger portion of the U.S. Defense order through its diverse product portfolio.

Another Mega Deal in the Space

Expansion through acquisition is not new in the defense industry. In September, United Technologies Corp. UTX finalized the deal to acquire Rockwell Collins Inc. COL for $30 billion. The deal is projected to be concluded by the third quarter of 2018, depending on consents from Rockwell Collins’ shareowners and other customary closing conditions including the receipt of required regulatory approvals.

Price Movement

Following Northrop Grumman’s announcement of Orbital ATK acquisition, shares of the former company have rallied 11.1% compared with the industry’s gain of 5.5%. This outperformance reflects that news of this acquisition has received positive response from the market.

Zacks Rank

Northrop Grumman carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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