Aerojet Withholds Rocketdyne Payment Pending Russian Approval of RD-Amross Transfer

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PARIS — Rocket-motor maker Gencorp Aerojet has withheld 25 percent of its payment to United Technologies Corp. (UTC) for the purchase of competitor Rocketdyne pending Russian government approval of the transfer to Aerojet of UTC/Rocketdyne’s 50 percent stake in the company that provides the first-stage engine for the U.S. Atlas 5 rocket, Aerojet said.

In a filing with the U.S. Securities and Exchange Commission (SEC), Aerojet left open the possibility that its purchase of UTC/Rocketdyne’s 50 percent ownership of Cocoa Beach, Fla.-based RD-Amross, which adapts the Russian RD-180 engine for use on the Atlas 5, might not occur.

“The acquisition [of the RD-Amross ownership] and UTC’s related business is expected to close following receipt of the Russian government regulatory approvals, if at all,” Sacramento, Calif.-based Gencorp Aerojet said in the SEC filing, dated July 9.

Aerojet Chief Executive Warren M. Boley Jr. said following the purchase of Rocketdyne in mid-June that it could take several months for the Russian government, whose state-owned Energomash builds the RD-180 engine, to approve the transfer to the new Aerojet Rocketdyne of the RD-Amross stake. Khimki-based Energomash owns the other 50 percent of RD-Amross.

Boley did not mention any specific change-of-control provisions in the RD-Amross shareholders’ agreement that would block or complicate a transfer of UTC/Rocketdyne’s shares, and he said initial Russian government reaction to the Aerojet purchase of Rocketdyne was favorable. But he said to expect several months before the transfer of the RD-Amross stake would occur.

Aerojet’s purchase of Rocketdyne was valued at $550 million. In the SEC filing, Aerojet said the value of the RD-Amross ownership was set at $55 million, and that this sum had been subtracted from Aerojet’s payment to UTC.

Also deducted from the original purchase price was the portion of the UTC business that markets and sells the RD-180 engines. Finally, Aerojet said the purchase price had been reduced to account for “changes in customer advances, capital expenditures and other net assets, and is subject to further post-closing adjustments.”

The net result is that Aerojet has paid UTC $411 million, Aerojet said.

Beyond any issues that may concern the Russian government, the purchase of UTC/Rocketdyne’s RD-Amross equity places Aerojet, now called Aerojet Rocketdyne, in an unusual position.

Aerojet has an established relationship with another Russian company, Kuznetsov Design Bureau/NK Engines, for which it refurbishes long-stored, Kuznetsov-built engines and sells them to Orbital Sciences Corp. of Dulles, Va., as AJ-26 motors powering Orbital’s new Antares rocket.

With the limited number of available AJ-26 engines dwindling — their production line in Russia has long been shut down — Orbital has sought to purchase RD-180 engines to replace the AJ-26.

But RD-Amross, citing exclusivity agreements with Atlas rocket operator United Launch Alliance of Denver, has refused to permit Orbital to purchase RD-180s. Orbital has now sued United Launch Alliance in a U.S. District Court in Virginia alleging infringement of U.S. antitrust law.

Boley said Aerojet and Kuznetsov have reached an agreement on restarting the engine production line once they have received a contract from Orbital.

The purchase of RD-Amross would put Aerojet Rocketdyne on both sides of the issue. RD-Amross presumably sees at least some advantage to maintaining an exclusivity deal with United Launch Alliance that may or may not outweigh the potential to broaden its customer base to Orbital.

How the pros and cons weigh for Aerojet Rocketdyne is unclear. The company said in its SEC filing that United Launch Alliance is already a major customer, accounting for 12 percent of Aerojet’s business, or about $34 million, for the three months ending May 31, up from less than 10 percent in previous quarters.

 

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