The Merger of Equals - Orbital and ATK Aerospace and Defense Groups

©Orbital/ATK

Orbital and ATK merge.

It is being billed as a merger of equals to create a new company called Orbital ATK. At first glance it appears to be a reaction to the current state of the market with consolidation and future growth needing a larger more competitive entity.

While neither company is at the level of Lockheed Martin or Boeing, the merger does create an entity that could be more competitive in a variety of areas drawing together the separate strengths of each company in a synergistic effort. The new company also better positions itself with upstart SpaceX, a prime competitor in the launch segment.

The new company which will combine Orbital and ATK's Aerospace and Defense Groups will create a $4.5 billion (combined calendar year 2013 annual revenue), 13,000-person space, defense and aviation systems developer and manufacturer. As part of the transaction, ATK will spin off its Sporting Group, which focuses on commercial sporting equipment.

The transaction, a tax-free stock-for-stock merger-of-equals, is valued at approximately $5.0 billion based on Orbital's closing stock price yesterday.

"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. 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," said Mr. Thompson.

"The proposed merger will generate cost and revenue synergies and create a more streamlined and competitive operator," said Mr. Mark W. DeYoung, ATK's Chief Executive Officer. "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."

Markets being served by the new company include space 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.

ATK shareholders will own approximately 53.8% of the equity of the combined company and Orbital shareholders will own approximately 46.2%.

Mr. David W. Thompson, Orbital's President and Chief Executive Officer, will be President and Chief Executive Officer of the new company. Mr. Blake E. Larson, President of ATK's Aerospace Group, will serve as its Chief Operating Officer; and Mr. Garrett E. Pierce, Orbital's Chief Financial Officer, will hold the same position in the new company.

Orbital ATK will employ about 13,000 people, including over 4,300 engineers and scientists and 7,400 production and operations specialists. The combined company will be headquartered at Orbital's existing Dulles, Virginia 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.

The deal is expected to close by the end of the year and will headquartered in Dulles, Virginia. In premarket trading both Orbital and ATK stocks were up.

- Merger press release
- ATK Announces Plan to Create Two Independent, Publicly Traded Companies

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