Orbital, ATK Announce $5-billion Merger

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The aerospace and defense groups of Orbital Sciences Corp. and Alliant Techsystems (ATK) will be combined in a stock transaction valued at $5 billion, the companies announced in a joint statement issued April 29.
The merger will form a space, defense and aviation systems development and manufacturing company of 13,000 that the companies said is worth approximately $4.5 billion.
The transaction, which is expected to close by the end of this year, could give Orbital a U.S.-sourced alternative to the modified Russian NK-33 engines used currently to power Antares first stage.
The new company, to be called Orbital ATK, Inc., will serve U.S. and international customers of spacecraft hardware, including launch vehicles and propulsion systems, tactical missiles and defense electronics, satellites and space systems, armament systems and ammunition, and commercial and military aircraft structures and related components, the company said.
As part of the transaction, ATK will spin off its Sporting Group, which focuses on commercial sporting equipment, to its shareholders.
The tax-free stock-for-stock merger-of-equals transaction will combine Orbital’s small- and medium-class satellite and launch vehicle product lines with ATK's A&D rocket propulsion, composite structures and space power systems to produce more capable and affordable space and missile defense products.
At the same time, it will enhance ATK A&D’s strategic and tactical missile systems and propulsion, precision weapons and military armament, and commercial and military aircraft programs by leveraging Orbital’s systems design, engineering and integration capabilities to provide greater value-added to current and future customers.
Orbital ATK will be led by a 16-member board of directors chaired by retired Air Force Gen. Ronald Fogleman. The panel will be comprised of seven directors from ATK’s board and nine directors from Orbital’s.
Orbital President and CEO David Thompson will lead the new company, with Blake Larson, President of ATK’s Aerospace Group, serving as chief operating officer.
Orbital CFO Garrett Pierce will hold the same position in the new company.
“This merger-of-equals combination of Orbital and ATK Aerospace and Defense brings together two of the space and defense industry’s most innovative developers and cost-efficient manufacturers who have worked closely together for over 25 years,” Thompson said in the statement. “By building on complementary technologies, products and know-how and highly-compatible cultures, the new Orbital ATK will deliver even more affordable space, defense and aviation systems to our existing customers and be strongly positioned to expand into adjacent areas.”
“The proposed merger will generate cost and revenue synergies and create a more streamlined and competitive operator,” said ATK CEO Mark DeYoung. “We see opportunities to build on ATK’s success in Aerospace and Defense through a combination with Orbital’s proven track record in creating new launch vehicles, satellites and other advanced space technologies. We are both focused on enhancing the capability of existing customer systems by developing solutions that can be more flexibly deployed to support their mission with enhanced cost-effectiveness. We also see significant opportunities for growth as new programs are initiated or begin to ramp up production.”
Orbital ATK will employ about 13,000 people, including over 4,300 engineers and scientists and 7,400 production and operations specialists, at engineering centers, research laboratories, manufacturing facilities, and test and launch sites in 17 states.
The combined company will be headquartered at Orbital’s existing Dulles, Va. campus, with major employee sites in Utah, Missouri, Virginia, Arizona, Maryland, West Virginia, California and Minnesota.
Based on 2013 financial results, the new company would have combined annual revenues of about $4.5 billion, EBITDA over $575 million and total contract backlog more than $11 billion. Net debt of Orbital ATK at closing is expected to be about $1.4 billion, after taking into account combined cash balances of approximately $300 million. Annual revenue and cost synergies of $220-300 million are expected by 2016, consisting of $150-200 million of incremental annual revenue and $70-100 million of annual cost reductions.
In the merger, ATK shareholders will own approximately 53.8% of the equity of the combined company and Orbital shareholders will own approximately 46.2%. The combination, which has been unanimously approved by the Boards of both companies, is to be effected in a tax-free “Morris Trust” transaction structure, with a spin-off of ATK’s Sporting Group to its shareholders immediately prior to the merger. The merger is conditioned on approval by the shareholders of both companies, the receipt of regulatory approvals, and other customary closing conditions. The transaction is expected to close by the end of 2014.

 

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