© Reuters.  Northrop's pricey purchase of Orbital ATK is worth it, investors say© Reuters. Northrop’s pricey purchase of Orbital ATK is worth it, investors say

  • Northrop Grumman ‘s (NYSE:NOC) $9.2B purchase including debt of Orbital ATK (NYSE:OA) was appreciated by investors of both companies, which ended today’s trade with respective 3.3% and 20.2% gains.
  • Analysts say the proposed deal would help NOC produce and launch large and small spy and communications satellites and develop new high-speed weapons and missile defense systems, and should clear the bar with regulators since there’s little overlap in the companies’ businesses.
  • The acquisition gives NOC “more options in DoD growth segments, such as missile defense and space, [and] exposure to the munitions refill cycle for both U.S. and some foreign military sales,” Cowen analysts say.
  • Defense is a hot sector amid a likely meaningful pickup in defense spending after years of sequestration amid North Korea concerns, and while “buying at the top isn’t usually a great M&A strategy… this is one case where the revenue opportunities for the combined company are pretty clear and likely to win over investors,” Bloomberg’s Brooke Sutherland writes.
  • Even with NOC paying a premium over OA’s record stock price, “it’s still offering a cheaper multiple than what United Technologies (NYSE:UTX) is paying for Rockwell Collins (NYSE:COL), and the revenue benefits there are much murkier,” according to Sutherland.
  • Note: The U.S. Senate has easily passed a $692B defense policy bill.
  • Now read: Northrop Grumman (NOC) To Acquire Orbital ATK – Slideshow

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