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Northrop Seeks More Missile Defense Business with Orbital ATK Buy

Northrop Grumman Corp., already one of the Pentagon's top five defense contractors, plans to buy Orbital ATK in a deal valued at more than $9 billion.

Analysts said the move, announced Monday, is designed in part to give the Falls Church, Va.-based company an expanded missile defense portfolio.

"Orbital ATK would add significant space and missile exposure to Northrop's portfolio, together with some smaller aerospace and ammunition businesses," Rob Stallard, an aerospace and defense analyst with Vertical Research Partners, based in Stamford, Conn., wrote in a note to clients.

"Although Northrop already has a significant presence in payloads, it has not had launcher capability, which is one of the areas that OA brings for both space and missile defense (GMD)," he added. "In the priority list of military customers, we expect space and precision munitions to remain high on the priority list, and probably grow at above average rates."

News of the deal, which is expected to close in the first quarter of 2018, comes the same month North Korea launched a second intermediate-range ballistic missile over Japan and claimed to have tested its first hydrogen bomb, a thermonuclear weapon.

Wes Bush, chief executive officer and president of Northrop, said customers will benefit from the acquisition of Orbital ATK, which it plans to operate as a fourth business sector, in addition to aerospace systems, mission systems and technology services.

"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," Bush said in a release.

As the transaction involves one of the biggest U.S. defense contractors, it will likely draw at least some scrutiny from Pentagon officials and lawmakers in Congress.

"Given that Northrop already operates in the space field, it is possible that there could be some overlapping activity or increased vertical integration that could prompt regulatory scrutiny," Stallard wrote. "We have also not had a prime contractor acquisition under the current US Administration, and so this is a test case as to whether concerns over the scale of the primes is still an issue."

A counter bid for Orbital ATK is probably unlikely, but parts of the company's portfolio may appeal to Boeing Co., according to Stallard.

Northrop and Boeing recently landed contracts valued at a few hundred million dollars for the Air Force's Ground Based Strategic Deterrent program to replace its Minuteman III intercontinental ballistic missile system.

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