The U.S. government is stepping in to try to block Lockheed Martin’s proposed $4.4 billion acquisition of Sacramento, Calif.-based Aerojet Rocketdyne, which supplies missile propulsion systems.
On Tuesday, the Federal Trade Commission (FTC) announced that it had filed a lawsuit to prevent the takeover of what it said was the nation’s last independent rocket engine manufacturer.
“If the acquisition 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,” the FTC said in a statement. “Without competitive pressure, Lockheed can jack up the price the U.S. government has to pay, while delivering lower quality and less innovation.”
Lockheed is the world’s largest defense contractor and a leading missile supplier in what FTC officials said was a “highly concentrated sector.” Raytheon Technologies, Inc., Northrup Grumman Corp. and Boeing also act as missile system prime contractors to the Defense Department.
The FTC said Aerojet provides solid rocket motor fuels for missile systems and supersonic combustion ramjets, or “Scramjets,” which are air-breathing engines that propel hypersonic cruise missiles.
“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,” the FTC said in a statement. “The combined firm could disadvantage competitors’ access to critical propulsion inputs for various weapons systems, the quality of the engineering support, and the schedule and contract terms for developing and supplying it.”
Lockheed Martin announced the proposed acquisition in December 2020. The Defense Department launched an assessment of the deal the next month after it was notified of the deal.
On Tuesday, chief Pentagon spokesman John Kirby declined to comment about the Defense Department report on the merger, saying it had been done internally.
In a press release also announcing its 2021 fourth-quarter and full-year earnings, Lockheed Martin acknowledged that the government was likely to oppose the merger on antitrust grounds. Lockheed Martin and Aerojet Rocketdyne had held off on closing the transaction as they awaited the federal response.
“Lockheed Martin has been advised by the FTC that its concerns regarding the transaction cannot be addressed adequately by the terms of a consent order,” the company said. “Lockheed Martin believes it is highly likely that the FTC will vote to sue to block the transaction and expects they will make a decision before Jan. 27, 2022.”
The company said it was weighing its options, including fighting the government order or terminating the merger deal altogether.
In coordinated statements, Lockheed and Aerojet Rocketdyne said both companies still “believe in the benefits of the transaction for the United States and its allies, the industry, and all of the company’s stakeholders.”