The Federal Trade Commission (FTC) on Tuesday evening approved the acquisition by Northrop Grumman [NOC] of Orbital ATK [OA] contingent on Northrop Grumman agreeing to operate its new solid rocket motor (SRM) business independently to avoid anticompetitive behavior.
Northrop Grumman on Wednesday afternoon after the close of stock markets on the East Coast completed its $7.8 billion transaction for Orbital ATK.
To enforce a firewall around the SRM business, which Northrop Grumman is getting through the acquisition, the Defense Department’s Undersecretary of Defense for Acquisition and Sustainment will appoint a compliance officer to ensure the company complies with the FTC’s order.
The FTC Commission’s vote on the consent order was unanimous.
The FTC said that Orbital ATK is “the premier supplier of SRMs,” which are essential for missile systems.
Without an order to put a firewall around the SRM business, “the acquisition would provide Northrop with the incentive and ability to harm competition for missile contracts by either withholding access to its solid rocket motors or increasing SRM prices to competitors,” the FTC said. “As a result, competitors would be forced to raise the prices of their missile systems, invest less aggressively to win missile programs, or decide not to compete at all, which, in turn, would decrease competitive pressure on Northrop.”
In addition to the firewall, the FTC said Northrop Grumman can’t discriminate when selling SRMs and related services to “all competitors for missile contracts.” The prohibitions on discriminatory behavior apply to “price, schedule, quality, data, personnel, investment, technology, design or risk,” the government said.
Northrop Grumman last September announced its agreement to acquire Orbital ATK, a deal which will increase its competitiveness in space and missile defense systems, and add tactical rocket motors and missiles to its portfolio.
With the transaction on the cusp of closing, Northrop Grumman updated its financial guidance for 2018, with sales now forecast to be around $30 billion, up from the prior outlook of around $27 billion, and earnings between $16.20 and $16.45 per share, 80 cents higher than previous projections. The company also expects free cash flow between $2.3 billion and $2.6 billion, an increase of $300 million from the prior range.
Orbital ATK will become Northrop Grumman’s fourth business segment and be called Northrop Grumman Innovation Systems. The new segment is led by Blake Larson, who previously was the chief operating officer of Orbital ATK and before that led the Aerospace Group of Alliant Techsystems, which acquired Orbital Sciences in 2015 to form Orbital ATK.