Tuesday, April 29, 2014

ATK To Merge With Orbital Sciences And Spin Off Sporting Group

ATK, formerly Alliant Techsystems, Inc., announced today that they plan to merge with Orbital Sciences in a $5 billion deal. The new company will be called Orbital ATK. As part of the merger, ATK will spin off their sporting group to shareholders as a new company.

From the Wall Street Journal:
ATK valued the all-stock combination with Orbital at $5 billion and its shareholders would retain 53.8% of the aerospace and defense business, to be known as Orbital ATK.

The proposed deal, which is expected to close by the end of 2014, would match the total level of defense M&A over the past three years combined, and puts 2014 within reach of the $9 billion in deals reached in 2008. Executives had shied away from transactions before securing more visibility of business trends from the fiscal 2014 and 2015 Pentagon budgets.

Mark DeYoung, ATK's chief executive, would run the separated operation business which, with 2013 revenue of $2.2 billion, is less than half the size of the $4.5 billion aerospace and defense business.
Excerpts from ATK's press release on the merger:
The company's Sporting and A&D (aerospace and defense)businesses operate in two fundamentally different markets with very different operating dynamics, compliance requirements, customer sets and growth opportunities. As standalone companies, they will be more focused businesses, with clear and distinct strategic visions and objectives, additional operational flexibility and the financial strength to make the most of their unique opportunities in their respective industries.

Since entering the commercial ammunition and sporting accessories space in 2001, ATK has built a leading position in the shooting sports for hunters, shooting enthusiasts and law enforcement professionals. The acquisitions of Savage and Bushnell in 2013 enabled ATK to expand its core competencies while creating opportunities to enter into new, adjacent markets in the outdoor recreation industry.

In today's growing market, the Sporting Group enjoys expanded distribution for some of the most widely known and respected brands in the industry: Federal Premium, Bushnell, Savage Arms, BLACKHAWK!, Primos, Final Approach, Uncle Mike's, Hoppe's, RCBS, Alliant Powder, CCI, Speer, Champion Targets, Gold Tip Arrows, Weaver Optics, Outers, Bolle, Cebe, and Serengeti.

"Sporting continues to deliver excellent performance," said DeYoung. "Results from our recently completed fourth quarter demonstrated continued revenue and earnings growth, and margin expansion. Full details on our fourth quarter results will be discussed on our May 15 earnings call."

ATK believes that separating Sporting into a standalone entity will facilitate opportunities to further drive growth and marshal resources to broaden and deepen its market leadership. ATK believes that a more focused corporate leadership team, operating within a clearly defined commercial market with a competitive business model, will contribute to unlocking significant value for ATK shareholders. Following the completion of the transaction, Sporting will also enjoy a strong balance sheet that will provide the ability to fund its growth strategy. Over the past 10 years, ATK's Sporting Group has delivered annual sales growth of approximately 16 percent (14 percent organic growth).
And on the new management and location:
Upon completion of the transaction, Mr. DeYoung will serve as the Chairman and Chief Executive Officer of Sporting. Mr. DeYoung is working with ATK's Board of Directors to develop detailed plans for an efficient and capable corporate structure with experienced management and strong governance policies and practices, as well as to establish the name and branding of Sporting. Sporting will be headquartered in Utah and is expected to employ nearly 5,800 workers in 11 states and worldwide.
And the details of the transaction which will be tax-free:
Under the terms of the transaction agreement, ATK will distribute ownership of Sporting to ATK shareholders in a spin-off transaction, following which, ATK shareholders will own 100 percent of Sporting. The spin-off will be immediately followed by a merger of Orbital with a subsidiary of ATK, with Orbital surviving the merger and becoming a wholly owned subsidiary of ATK. In connection with the merger, Orbital shareholders will receive 0.449 shares of ATK common stock for each share of Orbital common stock that they hold. Upon the closing of the merger, ATK shareholders will own approximately 53.8 percent of the combined company on a fully diluted basis and Orbital shareholders will own the remaining approximately 46.2 percent of the combined company on a fully diluted basis. As part of the transaction, Sporting has secured a $750 million senior secured financing commitment from BofA Merrill Lynch and will dividend $300-350 million of the proceeds of such new indebtedness to ATK immediately prior to the closing, which will be used by ATK to repay existing debt. Post issuing dividend to Orbital ATK, Sporting's net debt and total debt will be equal to the dividend. At the closing, Orbital ATK is expected to have a total of approximately $1.7 billion in gross debt and $1.4 billion of net debt. The transaction is expected to be tax-free to both companies as well as to ATK and Orbital shareholders.

The transaction is expected to close by the end of calendar year 2014, and is subject to customary closing conditions including regulatory approvals and the approval of each of ATK's and Orbital's shareholders. ATK and Orbital will continue to operate separately until the transaction closes.
The two most interesting aspects of this whole merger is that the sporting group will be spun off and that the current ATK CEO Mark DeYoung has cast his lot with the sporting group and not the aerospace/defense groups. It says a lot for the strength of the shooting sports industry that a CEO sees his future prospects as being better there than in the defense industry.


  1. I wonder how this will affect the commercially sold ammunition coming out of the Lake City plant. I'm presuming that the contract with the Feds to run the plant will go with Orbital ATK and not Sporting.

  2. The LCCAP will be under Orbital ATK with a 3 yr renewable agreement with the sporting company to provide ammunition, as well as a 3 yr deal with NRE to provide powder.

  3. That it does... And this is actually a pretty strange merger considering the current political environment...

    1. @Old NFO: I agree with you on this. After it is all completed, I plan to keep my sporting group stock and sell the combined Orbital ATK stock.

  4. I find it interesting that BoA is willing to finance this transaction. . . . maybe others in the industry need to pay heed to where to bank?

    -Dirk Diggler

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