Northrop Grumman to buy Orbital ATK for $7.8bn

US security company Northrop Grumman has agreed to buy aerospace and defence technologies group Orbital ATK for around $7.8bn in cash plus the assumption of $1.4bn in net debt.

Under the terms of the deal, which has been approved unanimously by the boards of both companies and is expected to close in the first half of next year, Orbital shareholders will receive $134.50 a share in cash.

Wes Bush, chairman, chief executive officer and president of Northrop, said: "The acquisition of Orbital ATK is an exciting strategic step as we continue to invest for profitable growth. Through our combination, customers will benefit from expanded capabilities, accelerated innovation and greater competition in critical global security domains. 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.

"We look forward to welcoming Orbital ATK’s talented employees to Northrop Grumman, and believe our combined strength will benefit our customers and shareholders."

Once the deal has completed, Northrop plans to establish Orbital ATK as a new, fourth business sector "to ensure a strong focus on operating performance and a smooth transition into Northrop Grumman". On a pro forma basis it expects to have sales in the range of $29.5bn to $30bn based on current guidance.

Northrop said the deal should be accretive to earnings per share and free cash flow per share in the first full year after it closes, and generate estimated annual pre-tax cost savings of $150m by 2020.

RBC Capital Markets said: "Our first take is that this is a reasonably-priced and strategically compelling deal for Northrop that strengthens its capabilities in compelling growth niches within defence and space markets."