Lockheed Martin buys Aerojet Rocketdyne in $4.4B deal

Updated on 12/21/2020 at 8:39 am to include comments from Lockheed Martin call with investors and at 10:06 am to add analyst comment.

WASHINGTON — Lockheed Martin will acquire Aerojet Rocketdyne in a $4.4 billion deal that will allow the defense giant to beef up its technical know-how in the areas of space, propulsion and munitions, the companies announced Dec. 20.

The acquisition signals Lockheed’s continued interest in the areas of hypersonic weapons and space — two major technology development priorities for the Defense Department and two areas of increased investment in recent years.

In particular, the acquisition would add “substantial expertise” to Lockheed in the area of propulsion, as Aerojet’s engines are already part of its supply chain across the company’s space, aeronautics and missile and fire control business units, Lockheed said in a news release

“Acquiring Aerojet Rocketdyne will preserve and strengthen an essential component of the domestic defense industrial base and reduce costs for our customers and the American taxpayer,” said Lockheed President and CEO Jim Taiclet. “This transaction enhances Lockheed Martin’s support of critical U.S. and allied security missions and retains national leadership in space and hypersonic technology.”

During a call with investors on Monday morning, Taiclet said that the Aerojet acquisition could drive efficiencies for Lockheed, especially in the space and missiles business areas, resulting in cost savings and products getting to market faster.

“I think on all of the key variants of cost, schedule, and quality, we’re going to be a better operator and a better supplier for our customer base,” he said.

Lockheed Chief Financial Officer Ken Possenriede added that the company’s analysis projected faster topline growth for Aerojet’s business when compared to Lockheed’s heritage product lines, even when taking into account the flattening defense budgets expected in the near term.

“And that’s only going to get better with the combination of the two entities,” he said.

In its own statement, Aerojet Rocketdyne also hailed the sale.

“Joining Lockheed Martin is a testament to the world-class organization and team we’ve built and represents a natural next phase of our evolution,” said Aerojet President and CEO Eileen Drake. “As part of Lockheed Martin, we will bring our advanced technologies together with their substantial expertise and resources to accelerate our shared purpose: enabling the defense of our nation and space exploration.”

The transaction is expected to close in the second half of 2021, though it is subject to the approval of the Defense Department and other regulatory authorities. Taiclet expects the Pentagon to allow the sale to move forward because of its approval in 2018 of Northrop Grumman’s acquisition of Orbital ATK, a propulsion and munitions manufacturer with a similar portfolio to Aerojet.

Byron Callan, a defense analyst with Capital Alpha Partners, called the deal “the first test of the Biden Administration and its views on defense sector consolidation” in an email to investors.

“We have moderate confidence that this deal will be completed, pending better visibility on who is appointed and confirmed at DoD by the Biden Administration,” he wrote.

The agreement calls for Lockheed to pay $56 per share in cash, which is expected to be reduced to $51 per share after the payment of a pre-closing special dividend.

Lockheed Martin ranked first on Defense News’ Top 100 list of defense companies in 2020. Aerojet was No. 51 on the list. Aerojet Rocketdyne logged approximately $2 billion in revenue in 2019 and has about 5,000 workers across 15 sites.

Sacramento, California-based Aerojet is providing the primary propulsion for both Lockheed’s and Boeing’s entrant to build a next-generation missile defense interceptor for the Missile Defense Agency.

In addition, the company has supplied the upper stage engine for United Launch Alliance’s Atlas 5 rocket and the upper and main-stage engines for the Delta 4 rocket. United Launch Alliance, a joint venture between Lockheed Martin and Boeing, is phasing out both vehicles.

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