US Federal Trade Commission - FTC's action forced Lockheed Martin to abandon the USD4.4 billion deal acquiring Aerojet Rocketdyne !

Federal Trade Commission (FTC) Forced Lockheed Martin out of Aerojet Rocketdyne Deal !

Lockheed Martin Corporation today announced it has terminated its agreement to acquire Aerojet Rocketdyne Holdings, Inc. The decision to terminate the agreement follows the U.S. antitrust agency Federal Trade Commission's (FTC) lawsuit filed late last month seeking a preliminary injunction to block the acquisition.

On Dec. 20, 2020, Lockheed Martin Corp. (LM) announced that it had entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. for $4.4 billion.

In January 2021, the Federal Trade Commission (FTC), the responsible antitrust agency for this transaction, notified the Department of Defense (DoD) of the transaction. Upon notification, and in accordance with Directive 5000.62, the Office of the Undersecretary of Defense for Acquisition and Sustainment (OUSD A&S) undertook an assessment of the potential implications of the transaction.

What does FTC say ?

Federal Trade Commission's (FTC)  complaint  alleges that if the deal is allowed to proceed, Lockheed will use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense. This is the agency's first litigated defense merger challenge in decades.

On 25th January, FTC released statements ,

“The FTC is suing to block Lockheed Martin, the world’s largest defense contractor, from eliminating Aerojet, our nation’s last independent supplier of key missile inputs,” said FTC Bureau of Competition Director Holly Vedova.

“Lockheed is one of a few missile middlemen the U.S. military relies on to supply vital weapons that keep our country safe. If consummated, this deal would give Lockheed the ability to cut off other defense contractors from the critical components they need to build competing missiles.

Without competitive pressure, Lockheed can jack up the price the U.S. government has to pay, while delivering lower quality and less innovation. We cannot afford to allow further concentration in markets critical to our national security and defense.”

Based outside Washington, Lockheed is the world’s biggest defence contractor. The company had announced its agreement to acquire Aerojet in December, saying it would “preserve and strengthen an essential component of the domestic defence industrial base and reduce costs for our customers and the American taxpayer”.

On ending its bid to buy Aerojet Rocketdyne Holdings, Lockheed Martin released statement ,

"Our planned acquisition of Aerojet Rocketdyne would have benefitted the entire industry through greater efficiency, speed, and significant cost reductions for the U.S. government," said Lockheed Martin Chairman, President and CEO James Taiclet.

"However, we determined that in light of the FTC's actions, terminating the transaction is in the best interest of our stakeholders. We stand by our long heritage as a merchant supplier and trusted partner and will continue to support Aerojet Rocketdyne and other essential suppliers in the Defense Industrial Base still overcoming the challenges of the pandemic.

DoD's reliance on the prime contractors 

Lockheed is the world’s largest defense contractor and a leading missile supplier in a highly concentrated sector. Lockheed, and its U.S missile competitors—Raytheon Technologies, Inc., Northrop Grumman Corporation, and The Boeing Company—act as missile system prime contractors to DoD.

These prime contractors are key intermediaries between the U.S. government and the rest of the missile systems supply chain, including the subcontractors such as Aerojet which provide system components to them.

DoD relies on prime contractors to develop, produce, sustain, and source a variety of weapons, including missile systems, hypersonic cruise missiles, and missile defense kill vehicles. Each of these weapons depend on critical propulsion technologies of the type supplied by Aerojet.

Aerojet, as a subcontractor, is the last independent U.S. supplier of critical inputs for missile systems, hypersonic cruise missiles, and missile defense kill vehicles. Aerojet and only one other competitor – Northrop Grumman – compete to provide propulsion inputs for missile systems and hypersonic cruise missiles to defense prime contractors.

Aerojet and Northrop Grumman both provide solid rocket motors for missile systems and supersonic combustion ramjets, or “scramjets,” which are air-breathing engines that propel hypersonic cruise missiles. Further, Aerojet is the only proven U.S. supplier of divert-and-attitude control systems that propel missile defense kill vehicles. 

Lockheed’s proposed acquisition of Aerojet would give Lockheed control over critical propulsion inputs that its rivals require to compete against Lockheed. Specifically, the complaint alleges that the proposed acquisition would give Lockheed the ability and incentive to deny, limit, or otherwise disadvantage competitors’ access to critical propulsion inputs for various weapons systems.

President and CEO James Taiclet further added,

"Moving forward, we will maintain our focus on the most effective use of capital with the highest return on investment, including our ongoing commitment to return value to shareholders. We remain confident in our company's strong foundation and growth potential as several exciting projects enter production.

"Finally, I'm proud of the 114,000 patriotic men and women of Lockheed Martin. They have a principled commitment to deliver the highest quality and most effective solutions to our customers. We will continue to support the United States and its allies through our industry leadership and developing the technologies to ensure effective threat deterrence for decades to come."