Cost savings and consolidation can’t explain investors’ enthusiasm.

Investors love the pending merger between Alliant Techsystems (ATK) and Orbital Sciences (ORB). In overnight trading after Monday’s announcement, NYSE:ATK increased 5 percent, and ORB increased fully 19 percent. Together, that’s an expectation that this tie-up is worth over half a billion dollars to the combined owners. Whence that value is flowing shows where the industry’s structure should be headed—towards focus for innovation.

Are there other explanations? Colin Clark at Breaking Defense took a deck-plate view, writing that this may be “just a sensible move between two space and defense companies facing declining demand for rockets and rocket engines”. If that’s the objective, this merger isn’t an effective consolidation, because the two companies largely don’t compete. Orbital makes whole satellites and their launchers. ATK makes satellite subsystems and boosters for other companies’ launchers. Indeed, Orbital has been a reliable customer of ATK for over 20 years. Add the buyer power of the largely governmental end-customers to the equation, and it’s clear that pricing power isn’t a factor in this deal.

Indeed, the merger is structurally more a matter of vertical integration, which has a wholly different set of motivations. Politics may be one issue. Space News reported that Orbital CEO David Thompson “strongly hinted that ATK will be replacing the Russian-sourced first-stage engine now used on Orbital’s Antares medium-lift rocket.” It is, after all, the season for that. But Orbital could also just buy the engines from an independent ATK. Cost would seem a stronger motivation. By taking ATK’s aerospace group in-house, Orbital’s make-versus-buy balance in rocket production will increase from at least 45-50 percent to 70-80 percent. Indeed, the two companies assert that they can rationalize their costs by $70–100 million annually. But Orbital’s business with ATK is only $75 million annually, so squeezing that much money from combining operations could be challenging.

Defense Industry Daily’s headline—Orbital Unshackles ATK’s Sporting Goods from Defense Doldrums—was also a little unfair. The marginal investor is smart enough to value each half of the company separately when pricing the whole. Management attention, though, certainly is a factor. As the official announcement made clear, and Reuters emphasized, ATK CEO Mark DeYoung will continue with the sporting goods half, as he has been working hard for several years to build that business. On the other side, handling a company of satellites, rockets, missiles, and aerostuctures is a task that permits a top management team some focus.

Then, the bigger but more focused team—another proceed of this selective vertical integration—may provide a synergy for innovation. Orbital and ATK have claimed that together they can generate new business in the range of $150–200 million annually. As Defense Mergers & Acquisitions Daily observed, just how the revenues will increase wasn’t made clear in the management presentation. But Byron Callan of Capital Alpha argues that the combined company may have the potential to disrupt the space launch business. The lighter end of the market may be poised for growth, with all the interest in new applications for satellite surveillance. The heavier end of the market has recently become turbulent, as continues the drama of Space-X gunning for the business of United Launch Alliance. In turn, ULA is hoping to replace its Russian engines within three to four years. The entire Polaris missile submarine program took slightly longer, so there is room for improvement. Amy Svitak at Aviation Week reported that ATK particularly values Orbital’s design team. Perhaps the two firms are hoping that closer integration will produce not just better rockets, but much better rockets.

While this deal is likely no harbinger of a merger wave, it may be an model for future restructurings. In the relatively efficient, transparent markets of North American and Western Europe, conglomeration provides no value to customers or owners. It’s no wonder that activist investors in the US are continuing to push for more focus in corporate activities in other industries. If the industry is going to help the military innovate its way beyond its financial constraints, we’ll need more management and engineering teams with a single-minded, burning desire for better.

James Hasik is a senior fellow in the Brent Scowcroft Center on International Security.