Brian Bradley
NS&D Monitor
10/31/2014
ATK senior managers are reviewing the planned merger of the company’s aerospace and defense divisions with Orbital Sciences after Orbital’s Antares rocket exploded during liftoff on Oct. 28 at Wallops Island, Va. ATK CEO Mark DeYoung delivered the information during the company’s Oct. 30 Q2 FY15 investor earnings conference call. ATK—whose defense arm manufactures propulsion systems for Minuteman 3 and Trident 2 missiles, and whose Launch Systems division is one of four businesses composing the Consolidated Nuclear Security team that manages the Y-12 and Pantex facilities—is currently expected to acquire Orbital by Jan. 31, 2015, according to SEC filings.
Before any acquisition, ATK will investigate the success, safety and performance of the solid propulsion devices it provides to Orbital, DeYoung said. “We are going to evaluate any potential impacts from this, to current operations in our delivery of solid propulsion to Orbital as a result of this,” he said. “And then, we’ll look through any implications to the proposed merger as well. So, we’re going to look at all those options, and we’ll evaluate the transaction.”
On Oct. 29, ATK released a statement that expressed uncertainty about future plans. “An unfortunate failure occurred during Orbital Sciences Corporation’s Antares launch on October 28, 2014,” the statement reads. “ATK is conducting a thorough evaluation of any potential implications resulting from this incident, including current operating plans, long-term strategies, and the proposed transaction to merge the company’s Aerospace and Defense businesses with Orbital.”
Stock Concerns
After news broke of the Antares launch failure, Orbital’s share price plunged 16.79 percent between market closings on Oct. 28 and Oct. 29, from $30.37 to $25.27 per share. ATK’s stock price also dipped by 6.5 percent between the two days, with the company reporting a price drop from $129.77 to $121.34 per share. At 4:30 p.m. on Thursday, Orbital was trading at $26.03 per share, up 3 percent from Wednesday, while ATK showed a 9.19 percent decline that was $11.15 less than Wednesday’s $121.34 closing price.
Proposed in April, the merger entitle Orbital stockholders to a fixed portion of 0.449 shares of ATK common stock for each share of Orbital common stock, with cash paid in lieu of fractional shares, according to ATK’s S-4 filing. The agreement dictates the spinoff of ATK’s sporting group division as well as the combination of ATK’s existing Aerospace and Defense under the name of Orbital ATK, Inc., according to ATK’s S-4 filing.
ATK Q2 Earnings Up
During the earnings call, DeYoung cited ATK solid rockets’ role in an unarmed Minuteman 3 launch as contributing to the defense group’s Q2 FY15 earnings of $487.7 million. “The aerospace group maintained its consistent performance, and again delivered modest year-over-year growth,” DeYoung said. “During the quarter, we were awarded contracts to provide solar rays for our next-generation commercial satellite, and the aerospace group supported several launches and tests with our solid-rocket motors and composite capabilities, including Delta 2 and Delta 4, the Atlas 5 and an unarmed Minuteman 3.”
On Oct. 30, ATK reported 3.1 percent and 3.4 percent sales increases within its aerospace and defense divisions, which factored into the company’s overall revenue increase of 11 percent. According to an Oct. 30 release, the aerospace group posted Q2 FY15 earnings of $329.2 million, $9.8 million more than Q2 FY14, while the defense group posted second quarter earnings of $487.7 million, up $15.8 million from the same quarter last year. Overall Q2 FY15 sales were $1.3 billion.
