On Tuesday of this week, Alliant Techsystems (ATK) and Orbital Sciences (ORB) disclosed they plan to merge in a marriage of equals following spinoff of Alliant’s fast-growing Sporting Group. The transaction will create a broadly diversified, $4.5 billion enterprise focused mainly on aerospace products with about a third of sales coming from defense, a third from civil agencies, and a third from commercial customers. Does this transaction tell us anything about other defense-consolidation moves that may unfold in the near future? Yes it does. First, they will be mainly stock transactions rather than cash exchanges — at least until valuations moderate. Second, they are likely to focus on creating greater mass in specific market segments. Third, they will tend to favor combinations that can apply core competencies to a broad array of defense, civil, and commercial markets. Fourth, vertical integration will be an important measure of synergy. And fifth, robust commercial franchises with no clear relationship to federal business lines may be spun off to maximize shareholder value. I have written a commentary for Forbes here.
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