ATK To Spin Off Sporting, To Merge Aerospace And Defense With Orbital

(RTTNews) - Alliant Techsystems Inc. (ATK) Tuesday said it would spin off its Sporting Group business and then merge the remaining Aerospace and Defense Groups with Orbital Sciences Corp. (ORB) to create a $5 billion merger of equals. Shares of both companies surged in pre-market trading.

Alliant's Board of Directors has unanimously approved a plan to create two independent, public companies with leadership in Outdoor Sports and Aerospace and Defense or A&D.

ATK currently operates in three business segments: Aerospace Group, Defense Group, and Sporting Group.

The board approved a definitive agreement that provides for the tax-free spin-off of the Sporting Group, which focuses on commercial sporting equipment, to ATK shareholders.

The spin-off will be followed by a tax-free, all-stock merger between ATK's Aerospace and Defense Groups or ATK A&D and Orbital Sciences.

ATK A&D is the world's top producer of solid rocket propulsion systems and a supplier of military and commercial aircraft structures and satellite systems.

The transaction is expected to close by the end of calendar year 2014. Upon completion of the transaction, ATK will change its name to Orbital ATK, Inc.

Orbital shareholders will receive 0.449 shares of ATK common stock for each share of Orbital common stock that they hold.

Current ATK shareholders will own around 53.8 percent of Orbital ATK on a fully diluted basis and current Orbital shareholders will own about 46.2 percent. Approximately $1.7 billion of existing ATK debt will remain at Orbital ATK.

Orbital ATK will be a focused and leading Aerospace & Defense player with combined revenues of $4.5 billion for the 12 months ended December 2013, and Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA of $585 million as well as contracted backlog of $11.0 billion.

The combination is expected to generate pre-tax cost synergies of $70-100 million through elimination of duplicate public company costs, economies of scale, and streamlining of operations.

Orbital ATK is expected to realize revenue synergies of $100-$200 million through improved product offerings, improved competitiveness and strengthened customer relationships.

The combined company expects to realize partial synergies in 2015 and fully recognize identified synergies by late 2016.

Upon completion of the transaction, Mark DeYoung, President and Chief Executive Officer of ATK, will serve as the Chairman and Chief Executive Officer of Sporting, which will be headquartered in Utah.

David Thompson, Orbital's Chairman, President and Chief Executive Officer, who is also a co-founder of Orbital, will serve as President and Chief Executive Officer of Orbital ATK.

General Ronald Fogleman, Chairman of ATK's Board of Directors, will serve as Chairman of the Board of Directors of Orbital ATK.

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 debt to ATK immediately before the closing, which will be used by ATK to repay existing debt.

Orbital said separately that it has entered into a definitive agreement with Alliant, which would combine Orbital and ATK's A&D Groups to create a $4.5 billion, 13,000-person space, defense and aviation systems developer and manufacturer.

The new company will serve U.S. and international customers with leading positions in the markets for space launch vehicles and propulsion systems, tactical missiles and defense electronics, satellites and space systems, armament systems and ammunition, as well as commercial and military aircraft structures and related components.

''The tax-free stock-for-stock merger-of-equals transaction, valued at approximately $5.0 billion based on Orbital's closing stock price yesterday, will combine Orbital's small- and medium-class satellite and launch vehicle product lines with ATK A&D's rocket propulsion, composite structures and space power systems to produce even more capable and affordable space and missile defense products,'' the company said.

ATK, which closed at $138.82, was gaining 6.6 percent in pre-market activity.

ORB, which settled at $26.57, was climbing 28 percent in pre-market activity.