(Bloomberg) — Lockheed Martin Corp. is expanding its foray into futuristic space travel and missile defense by acquiring supplier Aerojet Rocketdyne Holdings Inc. in a deal valued at $4.4 billion, targeting higher sales and more savings in an environment of tightening defense budgets.
As part of the transaction, Aerojet declared a $5 per share special dividend, to be paid on March 24, to holders of record as of March 10. The payment of that special dividend will adjust the $56 per share consideration to be paid by Lockheed Martin, according to a statement Sunday.
At $51, Lockheed will be buying Aerojet at a 21% premium from the closing price on Friday. Lockheed Chief Executive Officer Jim Taiclet stepped into the top job this year with a reputation as a dealmaker and a stockpile of cash. With Aerojet, he’s picking up a key U.S. supplier of propulsion systems for missiles, rockets and other space and defense applications.
Still, the consolidation is likely to face scrutiny from key customers such as the U.S. Defense Department and the National Aeronautics and Space Administration. Another question mark is the reaction of competitors such as Boeing Co. and Raytheon Technologies Corp. that rely on Aerojet’s motors for their own hypersonics and missile products.
It’s not clear how defense and antitrust officials “will view this deal, especially in a new administration, but we could imagine pushback from others in industry, such as Raytheon or Boeing,” Seth Seifman, an analyst at JPMorgan Chase & Co., said in a note to customers.
Aerojet soared 22% to $51.11 at 9:55 a.m. in New York after surging as much as 26%, the most intraday since 2009. Lockheed fell 2% to $348.79, giving the world’s largest defense contractor a market value of almost $98 billion. Aerojet declined 7.9% this year through Dec. 18 while Lockheed dropped 8.6%. A Standard & Poor’s index of U.S. aerospace and defense companies tumbled 18% over the same period.
Lockheed has been scouting for acquisitions. In January, the company said it was flush with cash and open to deals as Raytheon Co. prepared to combine with United Technologies Corp. to create a powerhouse in aerospace and defense.
What Bloomberg Intelligence Says
“Lockheed’s planned $4.4 billion acquisition of Aerojet Rocketdyne would add a key supplier of propulsion systems in hypersonics, space systems and franchise missile programs, all key defense areas, and we believe it may help it sustain growth above the flattening U.S. defense budget.”
–Douglas Rothacker, aerospace analyst
During Lockheed’s October earnings call, Taiclet said the company would be active but “very, very prudent” in its drive to “bring in the technologies faster into the company that we think are going to be crucial for the future.”
The Aerojet transaction is expected to close in the second half of 2021 after getting regulatory approvals and a nod from Aerojet’s shareholders.
At the end of last week, Aerojet’s stock was trading at 25 times expected earnings, compared with 16 times for Lockheed.
Lockheed’s space division is its third-largest business, contributing 18% of its 2019 revenue. The company competes with Elon Musk’s Space Exploration Technologies Corp. for U.S. government rocket launches through the United Launch Alliance, its joint venture with Boeing.
Lockheed was advised by Goldman Sachs, Ardea Partners and Hogan Lovells, while Citigroup and Evercore, as well as Jenner & Block and Gibson, Dunn & Crutcher represented Aerojet.