After shouldering years of government spending cuts, Alliant Techsystems Inc. announced Tuesday that it will merge its defense and aerospace business with Virginia-based Orbital Sciences and spin off its sporting ammunition unit into a separate company.

The news prompted Alliant's stock to shoot up 8 percent in early trading Tuesday, while Orbital's stock jumped 16 percent. Wall Street analysts praised the deal as a creative, smart approach to combat the government's increasingly tight defense spending. While investors welcomed the news, employees worried that the move, expected to close later this year, could result in job cuts in the Eden Prairie office of Alliant Techsystems, also known as ATK.

Alliant spokeswoman Amanda Covington would say only that the Eden Prairie site will become part of the newly merged Orbital ATK and that transition planning has not begun. The site has about 200 positions that include financing, IT, legal, financing and other functions. Eden Prairie was Alliant's headquarters until 2011, when the company moved corporate headquarters to Arlington, Va., to be closer to congressional and Pentagon officials in Washington, D.C.

The newly merged Orbital ATK will be run out of Dulles, Va., and the sporting business will be spun off to Alliant shareholders and be run out of Utah. Boards for both companies approved the pending split and merger.

Shareholders of Alliant will own 53.8 percent of the new Orbital ATK company. The combined firm that results from the all-stock deal will take on $1.7 billion of existing Alliant debt. All told, Orbital ATK will have $4.5 billion in annual revenue and $585 million in annual profits before taxes. The company expects $70 million to $100 million in cost-reduction synergies by 2016.

Officials said that the Alliant split-up came because the defense/space and sporting businesses operate in two fundamentally different markets with very different operating dynamics.

Analysts noted that Alliant has suffered in recent years as the U.S. government cut military spending and delayed contracts, which affected vendors of ammunition, missile and protective gear makers such as Alliant, and satellite and spacecraft makers like Orbital Sciences.

Both firms have been hurt by dramatic cutbacks in aerospace spending. For decades, Alliant made the rocket boosters that took space shuttles into orbit. The shuttle program, however, was suspended in 2011.

Alliant entered the sporting goods business in 2001 and has since grown it via several acquisitions and a surge in demand for police, hunting and civilian ammunition. The sporting group sells products under various brands including Federal Premium, Bushnell, Savage Arms, Blackhawk, Primos, Final Approach and more.

Including both sporting and military sales, Alliant is the world's largest manufacturer of small-caliber ammunition. It has supplied ammunition to the U.S. government and its allies for decades. Going forward, hunting and civilian ammunition sales will be controlled by the spun-off sporting business.

For the fiscal year ended March 2013, Alliant's sporting division generated roughly $1.16 billion in sales. That was 26 percent of Alliant's total $4.36 billion in fiscal 2013 corporate sales. However, officials noted that for the full calendar year ending in December 2013, sporting generated $2.2 billion in sales and $361 million in profits.

The sporting unit's rocket-like growth has captured the attention of Wall Street analysts. Barclays Capital analyst Carter Copeland recently boosted his forecast on Alliant, noting that "over time … the sporting group has made a more significant portion of the total company's sales and earnings. … The last seven quarters the business has posted average organic growth on a year-over-year basis of 23 percent."

Cowen & Co. analyst Gautam Khanna said in a research note to investors that management has expressed a willingness to expand the sporting division via more acquisitions. As a result, Khanna said, the unit could become a business valued at $3 billion to $3.6 billion.

Alliant's current CEO and president, Mark DeYoung, told analysts Tuesday that the sporting business is expected to continue to grow after the spinoff. It is also expected to buy ammunition from the Lake City Army Ammunition Plant that Alliant currently operates for the U.S. Army. It will also buy gunpowder and components from New River Energetics.

Analysts speculated that the sporting business is also likely to continue operating the lucrative Federal Cartridge ammunition plant in Anoka. Company officials declined to comment, saying that post-spinoff planning has not yet begun.

While Alliant is contributing more than $3.2 billion to Orbital ATK's estimated $4.5 billion in revenue, it appears that Orbital's management will take two of the top leadership posts of the new entity that will have 13,000 workers and key locations in 17 states, including key operations in Minnesota, Virginia, Maryland, West Virginia, Missouri, California, Arizona and Utah.

Officials announced Tuesday that Orbital CEO Dave Thompson will become CEO of the new entity. Orbital CFO Garrett Pierce will become CFO of the new entity. Alliant Senior Vice President Blake Larson will become chief operating officer.

DeYoung will become chairman and CEO of the stand-alone sporting entity.