What happened

Shares of Aerojet Rocketdyne (NYSE:AJRD) rocketed more than 20% higher on Monday morning after Lockheed Martin (NYSE:LMT) announced plans to acquire the space-focused company for $4.4 billion.

So what

On Sunday night, defense titan Lockheed Martin  announced plans to acquire Aerojet Rocketdyne for $56 per share in cash, or $51 per share after Aerojet pays a special $5 per-share dividend prior to the deal's closing. That's a premium of 33% to the target's Friday close.

A rocket blasts into space.

Image source: Getty Images.

Aerojet Rocketdyne is a provider of rocket engines and other propulsion systems used by space companies and missile manufacturers. Lockheed Martin is already a major customer, and the buyer said it believes that by integrating Aerojet into Lockheed's business, it can become more efficient and boost development of next-generation weapon systems.

The companies expect to close the deal in the second half of 2021, subject to shareholder and regulatory approval.

Now what

Aerojet shares are getting a nice boost on Monday but are trading below the buyout price. That's likely due, at least in part, to shareholders worrying about regulatory approval.

Aerojet's archrival Orbital ATK is already part of a larger organization, as it was sold to Northrop Grumman in 2018. Lockheed Martin rivals, including Raytheon Technologies and Boeing, are likely to object to Aerojet joining forces with Lockheed and could raise objections to the deal.

A bit of caution is advised until we know more about how the deal will play out with regulators. For now, Aerojet Rocketdyne shareholders have a lot to be happy about, given the premium Lockheed has offered.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.