Alliant Techsystems (ATK)

Alliant Techsystems (often referred to by its ticker symbol, ATK) was a prominent American aerospace and defense and sporting goods company. It was originally formed in 1990 when Honeywell spun off its defense business. For nearly 25 years, ATK operated as a major supplier of rocket motors, satellite components, and ammunition to both government and commercial customers. Its legacy is particularly fascinating for investors due to its dramatic corporate transformation in 2015, which serves as a classic case study in unlocking shareholder value. The company split into two separate, publicly traded entities: one focused on aerospace and defense, which merged with Orbital Sciences to become Orbital ATK, and the other a pure-play sporting goods and ammunition company called Vista Outdoor. This strategic breakup illustrates a key principle often sought by value investors: realizing the hidden worth of a company by separating its distinct business lines.

For students of value investing, the story of ATK is less about its products and more about its structure and subsequent breakup. The company's history offers a powerful lesson in how conglomerates can obscure the true value of their underlying assets and how corporate actions like spinoffs and mergers can create significant opportunities for sharp-eyed investors.

Prior to 2015, ATK was essentially two very different companies operating under one corporate roof. Understanding this duality is key to seeing why the split made sense.

• The Aerospace & Defense Group: This was ATK's core legacy business. It manufactured highly engineered products like the solid rocket boosters for NASA's Space Shuttle, missile propulsion systems for the U.S. military, and components for commercial satellites. This division was characterized by:
  1. High Barriers to Entry: Enormous capital investment, deep technical expertise, and long-standing government relationships created a powerful competitive moat.
  2. Long-Term Contracts: Revenue was often predictable, based on multi-year government programs.
  3. Lumpy but Profitable: While subject to government budget cycles, the business generated strong and steady free cash flow.
• The Sporting Group: This division owned a portfolio of leading consumer brands in the ammunition and outdoor accessories market, including Federal Premium, CCI, Speer, and Bushnell. This business was fundamentally different:
  1. Brand-Driven: Its success depended on brand loyalty and a strong distribution network.
  2. Cyclical: Sales were heavily influenced by consumer spending, hunting seasons, and the political climate surrounding firearms.
  3. Different Metrics: It was best evaluated using consumer-brand metrics like market share and sales growth, not defense-contract backlogs.

This conglomerate structure often resulted in a “conglomerate discount,” where the market valued ATK at less than the sum of its individual parts because it was difficult to analyze and its diverse operations offered few synergies.

In 2014, ATK announced a plan to untangle its businesses, which was completed in 2015. This was a textbook move to unlock shareholder value.

1. The Spinoff: The Sporting Group was spun off to ATK shareholders, creating a new, independent company called Vista Outdoor (VSTO). For every two shares of ATK they owned, investors received one share of VSTO. This created a pure-play company focused entirely on the consumer sporting goods market.
2. The Merger: Immediately after the spinoff, the remaining Aerospace and Defense Group merged with a competitor, Orbital Sciences Corporation. This transaction formed a new, more powerful entity named Orbital ATK. This company was a stronger, more focused competitor in the space and defense industry.

Why this was a win for investors: This separation allowed the market to value each business on its own merits. The management teams of both new companies could focus their strategies, and investors could choose which business profile they preferred: the stable, long-term growth of aerospace or the cyclical, brand-driven world of sporting goods. As is common in such situations, both new entities were eventually “re-discovered” by the market. In 2018, Orbital ATK was acquired by Northrop Grumman at a significant premium, rewarding the investors who had held on.

The ATK saga provides timeless and practical insights for building wealth.

• Spinoffs Are a Hunting Ground: Spinoffs, like Vista Outdoor, are a favorite area for legendary investors like Joel Greenblatt. New, spun-off companies are often initially ignored or sold indiscriminately by institutional investors who are unfamiliar with the new story, creating potential bargains for those willing to do the homework.
• Think in “Sum of the Parts”: When you see a company with multiple, unrelated business lines, try to value each one as if it were a standalone company. If your “sum-of-the-parts” valuation is significantly higher than the company's current market capitalization, you may have uncovered a hidden value opportunity that could be unlocked by a future split, just like ATK.
• Patience Pays: The value from a corporate restructuring isn't always realized overnight. The full story of ATK's breakup played out over several years, culminating in the Northrop Grumman acquisition. Great investment theses often require time to mature.