The deal is another consolidation move among defense contractors, after United Technologies said this month that it will buy Rockwell Collins for $23 billion.
Northrop Grumman’s $7.8 billion purchase of Orbital ATK would expand its space and missile businesses amid rising global tensions.
The deal cements a turnaround for Northrop, which had been the target of breakup speculation before it scored an upset win in 2015 to build the next U.S. stealth bomber. The Orbital transaction adds rocket propulsion, missile-defense and satellite expertise to Northrop’s capabilities as a major U.S. weapons maker.
Buying Orbital would make Northrop the fourth-largest Pentagon contractor, displacing Raytheon, according to Bloomberg Government. Together, Northrop and Orbital got about $14.6 billion from Pentagon contracts last year, about half of their combined sales.
The deal would rank as the largest in the defense industry since Lockheed Martin bought Sikorsky Aircraft in 2015.
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Orbital stands to benefit as the U.S. expands a ground-based missile-defense program that Northrop already supplies with command-and-control systems. U.S. contractors have soared this year on prospects for greater weapons spending under President Donald Trump.
“As we watch what’s happening around our globe, the rather rapid advance of some of our potential adversaries is quite concerning,” Northrop Chief Executive Officer Wesley Bush said on a conference call with analysts to discuss the transaction. “This issue of technological superiority for the U.S. and our allies is a real issue. It’s something that our customers are struggling with.”
Orbital’s “expansive position in missile defense would solidify” Northrop’s place in a growing market, Cowen analyst Cai Von Rumohr said in a note to clients.
The deal adds a new wrinkle to Northrop’s competition with Boeing to develop the next ground-based missile interceptor system in the U.S., a contract that could be worth as much as $85 billion. Orbital has also designed propulsion systems on Minuteman III missiles in the past.
Orbital “is a leader in solid rocket propulsion” while Northrop “is strong in sensors and networks, enabling a comprehensive ballistic missile defense solution,” Jefferies analyst Howard Rubel said Monday in a note to clients.
While there is limited overlap between the companies, the tie-up,…