Antitrust regulators clear Northrop to close Orbital ATK deal

Northrop Grumman is set to close its acquisition of Orbital ATK in conjunction with the green light from U.S. antitrust regulators to proceed with conditions over the combined entity’s solid rocket motor business.

The company received word from regulators on Tuesday and said it expected the $9.2 billion deal including debt to close on Wednesday.

As part of the conditions established by the Federal Trade Commission, Northrop must establish a firewall between that business and the rest of the post-close company, as well as make the motors and related services available to all competitors for missile defense contracts, the Federal Trade Commission said separately Wednesday.

The FTC’s clearance comes nearly six months after it made a second request to Northrop for more information on the deal. The European Commission cleared the transaction in February.

Mergers and acquisitions involving platform makers in the government market can take longer for antitrust and defense officials to review than deals involving IT and professional services companies.

The FTC cleared the General Dynamics IT-CSRA combination in March, one month after that deal was announced; and approved the three-way merger to create what is now Perspecta in December, three months after that transaction was announced.

First announced in September, Northrop cited the rationale behind the combination as including in part greater access to missile defense and space platform work for the military.

CEO Wes Bush told investors then and in almost every earnings call since that he views as complementary Northrop’s experience with large space platforms and Orbital ATK’s background in making smaller-sized vehicles along with rocket boosters and other systems.

The FTC typically does not require so-called “behavior remedies” to address competition concerns that arise from large consolidation deals such as this one but said the defense industry’s unique nature with a single customer in the Pentagon led it to go this route.

In its statement, the FTC cited concerns that Northrop could raise prices on the motors on competitors or withhold them altogether, both of which the agency said would give the company a clear advantage for missile contracts.

Additionally, “”the acquisition creates a risk that the proprietary, competitively sensitive information of a rival (solid rocket motor) supplier supporting Northrop’s missile system business could be shared with Northrop’s vertically integrated SRM business,” the FTC said.

A compliance officer appointed by the Defense Department’s undersecretary for acquisition and sustainment will oversee Northrop’s compliance with the order.

Northrop is paying $7.8 billion in cash to purchase Orbital ATK and assuming $1.4 billion in net debt.

Northrop also said it expects revenue of $30 billion this year versus the prior $27 billion forecast with the inclusion of contributions from Orbital ATK, which becomes a fourth segment of Northrop called "Innovation Systems."