Investors look to the skies as two huge acquisitions are in the works right now within the Aerospace and Defense industry. Why are they happening, and what does it mean for investors?

United Technologies [NYSE:UTX] Acquires Rockwell Collins [NYSE:COL]

On September 4, United Technologies announced their plans to acquire Rockwell Collins. So why does this matter? The conglomerate that is UTX already has one of the biggest market caps in the sector, at $97B. Today’s aerospace companies design, but don’t entirely build their aircraft from scratch. The days of complete in-house manufacturing is behind us; outsourcing has proven to be a more economically feasible method of producing aircraft.

Boeing 787 Dreamliner breakdown by section and manufacturer. (REUTERS GRAPHICS)
Boeing 787 Dreamliner breakdown by section and manufacturer. (REUTERS GRAPHICS)

UTX already owns UTC Aerospace Systems. Through this business, UTX has a hand in an impressive number of aircraft ranging from foreign and domestic commercial to military applications. The 787 Dreamliner above can attribute it’s existence to a host of parts contributed by UTC, a key supplier.

Rockwell Collins is no slouch in this market, either. Founded in 1933, and having successfully maintained an abundance of long-term customers, their name is widely known and respected in the industry.

The reach both companies have means such an acquisition will be a topic of interest to the entire sector. The two companies no longer competing against one another results in either less competition, or manufacturers will go to smaller suppliers. So the world watches and waits for the process to finalize.

A few facts about the companies and acquisition:

  • The acquisition is going to cost UTX $30 billion, implying COL is worth about 23 billion and carries with it about 7 billion in debt.
  • UTX has a market cap of about $97 billion, and COL about $19.3 billion.
  • Shareholders of COL will receive $93.33 per share in cash, and $46.67 in shares of UTX per share.
  • UTX expects sales of about $67-$68 billion following the transaction, up $9.5 billion from what the conglomerate is projecting in sales this year.

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Northrop Grumman [NYSE:NOC] Set to Acquire Orbital ATK [NYSE:OA]

Northrop Grumman, a major player in the sector, is set to acquire Orbital ATK, a defense-focused aerospace manufacturer. Orbital is known for their missiles, satellites and launch systems. Unlike the above UTX Acquisition, Northrop believes that Orbital will bring to the table much of what they don’t already have. Orbital would bring to the table several systems that will compliment what Northrop already does, with minimal overlap. This will result in the ability to expand in a way Northrop truly needs.

Such a merger will bring NOC up to become the fourth largest defense supplier, surpassing Raytheon. This is not a minor thing; to hold such a position shows a terrific turnaround for Northrop. It wasn’t all that long ago (about 2015) that there was rumor of the company splitting apart! The deal still needs to be approved by all of the proper channels, including investors- so hang on and let’s see where it goes!

A few known facts about this deal:

  • An offer of $7.8 billion is on the table at the moment
  • With an approximate debt of $1.4 billion (assumed), the deal comes out to a grand total of $9.2 billion.
  • NOC has a market cap of about $48.46 billion, and OA about $6.15 billion.
  • The acquisition won’t likely be finalized until early 2018

 


Disclaimer

As of this moment, I do not own shares of any company mentioned in this post. My opinions are entirely my own and may or may not reflect the opinions of my peers on TickHounds. I am not being compensated for sharing my due diligence in any way other than what tips may be accrued.

Sources can be found below:
UTX Fact Sheet
Rockwell Collins Investors’ Presentation
Press Release UTX Acquisition of
Primary Image Source
787 Dreamliner Image Source