Federal Trade Commission sues to block Lockheed Martin’s acquisition of Aerojet Rocketdyne
On Tuesday, the Federal Trade Commission filed a lawsuit to block Lockheed Martin Corporation’s proposed $4.4 billion acquisition of Aerojet Rocketdyne Holdings Inc, the last independent US supplier of missile propulsion systems.
Aerojet supplies advanced power, propulsion and weapon systems, critical components for missiles manufactured by Lockheed and other defense prime contractors.
The FTC complaint alleges that if the deal is cleared, Lockheed will use its control over Aerojet to harm rival defense contractors and further consolidate several critical national security and defense markets — essentially, they will have created a monopoly. It’s the agency’s first contentious defense merger challenge in decades.
“The FTC is suing to stop Lockheed Martin, the world’s largest defense contractor, from eliminating Aerojet, our nation’s last independent supplier of key missile inputs,” the director of the Competition Bureau said. FTC, Holly Vedova, in a press release. “Lockheed is one of the few missile intermediaries the U.S. military relies on to supply vital weapons that keep our country secure. . Without competitive pressure, Lockheed can raise the price the US government has to pay, while offering lower quality and less innovation. We cannot afford to allow greater concentration in markets critical to our national security and defence.
According to a press release, the US Department of Defense reviewed the acquisition and considered the potential impacts of the transaction on national security, the country’s industrial and technological base, competition and innovation. As part of this assessment, the DoD facilitated a series of FTC-led interviews with relevant DoD stakeholders. The DoD’s assessment was provided to the FTC for its deliberations and final decision making.
“The FTC has determined that the proposed transaction harms competition for several weapon systems that the DoD relies on to defend the nation and that there is no sufficient remedy to mitigate those harms,” said Vedova.
In a statement released by Lockheed Martin, the company said its options include defending the acquisition in court or terminating the merger agreement with Aerojet.
“Lockheed Martin continues to believe in the benefits of the transaction for the United States and its allies, industry and all of the company’s stakeholders,” the company statement said.
Lockheed Martin is the world’s largest defense contractor and one of the world’s top missile suppliers, according to the FTC statement, and its competitors include Raytheon Technologies, Inc., Northrop Grumman Corporation and The Boeing Company.
Aerojet is the only independent U.S. supplier of “critical inputs” for missile systems, hypersonic cruise missiles and missile defense vehicles, according to the FTC. Only Aerojet and Northrop Grumman produce propulsion inputs for missile systems.
According to the FTC, if Lockheed acquired Aerojet, the former company would have control over the critical products manufactured by the latter and could potentially prevent competitors from accessing these components for their own defense products.
“The combined business could disadvantage its rivals by affecting the price or quality of the product, the quality of technical support, and the timing and contractual terms to develop and supply it or disadvantage its rivals”, indicates the FTC statement. “As a subcontractor, Aerojet also had access to the prime contractors’ sensitive information about technology advancements, costs, schedule and business strategies. The complaint alleges that after the acquisition, Lockheed would have an incentive to exploiting its access to its rivals’ proprietary information to gain an advantage in competitions against them.”
The monopoly would also allow Lockheed to raise the prices it charges the U.S. government and prevent further research and innovation, according to the FTC.
According to the FTC’s complaint, the proposed transaction could impact research and development as well as innovation in the future, which is vital to ensuring that the United States remains a leader in these technologies.
The FTC will file a lawsuit in the U.S. District Court for the District of Columbia seeking a preliminary injunction to stop the deal pending an administrative trial. The administrative trial is due to begin on June 16.