ATK buys Swales, to grow in Md.

Alliant looks to build satellite business with purchase of space engineering expertise

April 04, 2007|By Allison Connolly | Allison Connolly,Sun reporter

Alliant Techsystems Inc., the world's largest manufacturer of solid-fuel rocket motors, including those that propel the space shuttle into orbit, is expanding its satellite business with the acquisition of Beltsville-based Swales Aerospace.

The purchase is a significant one for Alliant, which is better known by its ticker symbol, ATK. Swales has contracts to build satellite delivery systems for the military and intelligence agencies, and together they would be able to offer a broad spectrum of products, analysts said.

"In the post 9/11 era, we're looking to collect more data, so there's no question that market is continuing to grow," said analyst Peter Arment of JSA Research Inc. in Newport, R.I.

The Edina, Minn.-based defense contractor plans to establish a new unit around Swales called ATK Space, to be headquartered in Beltsville. Some ATK operations from offices in California and Utah will be integrated with the new unit, with some jobs likely to be shifted to Maryland.

"Their product line is highly synchronous with ours," said John J. "Jack" Cronin, president of ATK's Mission Systems Group, which recently moved its headquarters to Baltimore.

ATK Space will become a unit of Cronin's group, and Swales' chief executive Mike Cerneck will head it.

ATK already has nearly 1,200 employees in the state, including 600 at its plant in Elkton. Half of its 1,000 employees at a facility in Rocket Center, W.Va., also live in Maryland. Overall the company has 15,500 workers in 21 states.

Swales has 680 employees in Beltsville and another 200 spread between offices in Hampton, Va., which supports NASA Langley Research Center, and Pasadena, Calif., home to NASA's Jet Propulsion Laboratory.

Cronin and Cerneck said it was premature to talk about whether there will be layoffs, but ultimately, both said they hope to expand operations in Maryland. Cronin called Swales' engineers "the cream of the crop."

"It's very important to keep the fundamental assets in place, and that's the people," Cerneck said.

Terms of the deal, which is subject to regulatory and shareholder approval, were not disclosed.

For 2006, Swales earned about $202 million in revenue. If the deal closes next month, it should contribute $100 million to ATK's revenue in fiscal year 2008, officials said. Publicly traded ATK, which is also the nation's largest armament manufacturer, expects fiscal 2007 revenue of about $3.5 billion.

ATK has been building its space business largely through acquisitions, said Philip Finnegan, director of corporate analysis for the aerospace consulting firm Teal Group in Fairfax, Va. As a result, sales for the Mission Systems group have grown rapidly, from $271 million in fiscal 2004 to $468 million in fiscal 2006, he said.

"Swales fits very well within this strategy," Finnegan said.

Cerneck, who came to Swales last year from Ball Aerospace and Technologies Corp., said the privately held, employee-owned Swales had not been for sale. But he said he could not ignore ATK's pitch.

"Most companies get overtures from people most of the time," Cerneck said. But with ATK, "we immediately suspected there were synergies and value in Swales and ATK being together."

Most of Swales' employees carry highly sought-after security clearances, Cronin said. The deal would effectively double the number of clearances currently held by ATK and allow it to compete for more sensitive government contracts.

ATK is particularly interested in a contract Swales has with the Air Force to build delivery vehicles for small satellites that collect intelligence from the battlefield and beam it back to the decision-makers in real time. The satellite payload and Swales-built "bus" that carries it into space can be designed and delivered in 12 months, making it attractive not only to the government and military but also the commercial sector, Cronin said.

The two companies have some of the same customers and partners, and have worked together before.

In February, NASA launched five spacecraft from Cape Canaveral to study the Earth's aurora. The payloads sat in buses made by Swales in Beltsville, atop rockets with ATK STAR motors built in Elkton.

ATK has made several acquisitions over the years.

In 2001, the company - with the help of tax incentives from the state and Cecil County - purchased the former Thiokol Corp. plant in Elkton, which manufactures the solid rocket motors for the space shuttle and was in danger of closing at the time.

Now, Elkton is home to several high-profile ATK contracts.

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