US defense contractor L3Harris to buy Aerojet Rocketdyne for $4.7bn Deal comes after regulators blocked Lockheed’s takeover of rocket maker associated with Himars systems used in Ukraine.
US aerospace and defence contractor L3Harris Technologies will acquire Aerojet Rocketdyne, the last independent domestic maker of missile propulsion systems, in a $4.7bn deal.
The acquisition comes after Lockheed Martin, the world’s largest defence contractor by revenue, tried to buy the rocket maker for $4.4bn before abandoning the bid after federal regulators sued in January to block it. At the time, the Federal Trade Commission alleged that Lockheed would use its ownership of Aerojet to damage other defence companies and would ultimately control multiple defense programmes critical to national security.
Under the terms of the deal agreed at the weekend, L3Harris will pay $58 per share in an all-cash transaction valuing Aerojet at $4.7bn, inclusive of net debt.
The unconsummated Lockheed deal had been struck at $56 per share in December 2020. “We’ve heard the DoD leadership loud and clear: they want high-quality, innovative and cost-effective solutions to meet both current and emerging threats, and they’re relying upon a strong, competitive industrial base to deliver those solutions,” said L3Harris’s chief executive Christopher Kubasik.
L3Harris will use existing cash and issue new debt to fund the deal, which will need US regulatory approval to be completed. Sean Stackley, senior vice-president for strategy and growth at L3 Harris, played down potential concerns that the deal might run afoul of regulators.
The FTC’s concerns around Lockheed’s proposed acquisition had focused on its impact on “competition and also on innovation”, he said in an interview with the Financial Times. L3 Harris, said Stackley, intended to “strengthen the merchant supplier role that Aerojet plays in defence and space”.
The company, he added, was already speaking to customers of Aerojet: “I think we are getting a warm reception.” A series of mergers and acquisitions over the past several decades has turned the defence industry into one of the most consolidated in the US. In the 1990s, 51 prime contractors worked for the Pentagon. This has shrunk to five highly diversified companies: Lockheed, Raytheon Technologies, Boeing, General Dynamics and Northrop Grumman.
Recommended Aerojet Rocketdyne Inc A bitterly divided board, Birkin bag bonuses and a fight for control L3Harris, known for communications and electronic technologies embedded in weapons systems such as sensors, and for its involvement in space programmes, is the sixth-largest US defense contractor with annual revenue of $17.8bn, according to Refinitv data.
It is responsible for making the position and navigation unit for the Himars, or high mobility artillery rocket system, a truck-mounted rocket launcher that has been critical for the Ukrainian army in its fight against Russia. Lockheed, Raytheon and Boeing, the three prime tactical missile contractors for the Department of Defense, rely on Aerojet and a Northrop Grumman subsidiary for critical components such as rocket motors.
Its acquisition will make L3Harris a more important subcontractor for these three larger companies as well as the Pentagon. Aerojet executed $2.2bn in sales last year. Aerojet’s rocket systems have been important on the Ukrainian battlefield, too.
They provide the propulsion systems for the Javelin and GMLRS, or guided multiple launch rocket system, missiles the US has provided, the latter of which is shot out of the Himars. Florida-based L3Harris was formed in 2019 via the merger of L3 Technologies and Harris Corporation, and the group has been seeking further scale through acquisitions.
Earlier this year, it purchased Viasat’s tactical data links unit, which provides data and voice communications systems for military vehicles, aeroplanes and ships, for $1.96bn. Stackley said L3Harris expected both acquisitions to close in 2023.
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