Federal Trade Commission blocks Lockheed Martin’s acquisition of Aerojet Rocketdyne

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FTC statement: 'Lockheed will use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense'

WASHINGTON — Lockheed Martin’s proposed $4.4 billion acquisition of rocket engine manufacturer Aerojet Rocketdyne has been blocked by the Federal Trade Commission, the agency announced Jan. 25. 

Lockheed Martin in December 2020 announced its intent to acquire Aerojet Rocketdyne, the last independent U.S. supplier of missile propulsion systems. The FTC said it will sue to block the deal, arguing that 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.”

Aerojet supplies power, propulsion and armament systems used in missiles made by Lockheed and other defense prime contractors.

“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,” FTC Bureau of Competition Director Holly Vedova said in a statement.

The FTC also stated that the acquisition of Aerojet would “give Lockheed the ability and incentive to deny, limit, or otherwise disadvantage competitors’ access to critical propulsion inputs for various weapons systems. The combined firm could disadvantage rivals by affecting the price or quality of the product, the quality of the engineering support, and the schedule and contract terms for developing and supplying it or otherwise disadvantage its rivals.”

As a subcontractor, Aerojet has had access to prime contractors’ sensitive information about their products and business strategies. The FTC alleges that post-acquisition, “Lockheed would have an incentive to exploit its access to its rivals’ proprietary information to gain an advantage in competitions against them.”

As an independent supplier, Aerojet has the incentive to allocate its research and development funds based on the potential return the funds would generate regardless of which prime contractor it is supporting, said the FTC.  “The combined firm would be incentivized to allocate Aerojet investment dollars for the combined firm’s benefit alone, which would stifle innovation.”

Over the past year, Lockheed Martin has argued that the merger should follow the same template as Northrop Grumman’s acquisition in 2018 of solid rocket motors manufacturer Orbital ATK. The Northrop-Orbital deal was approved by regulators on condition that the company agreed to supply motors to its competitors. 

“The FTC during the Biden administration has taken a different view on market concentration and vertical integration than the last one, which approved the Northrop Grumman-Orbital ATK deal,” noted industry analyst Byron Callan, of Capital Alpha Partners.

Lockheed Martin CEO James Taiclet during a fourth quarter earnings call Jan. 25 said the company “will review the lawsuit and evaluate all of our options.” The company can choose to challenge the FTC or terminate the merger agreement. Under the terms of the merger agreement, Lockheed has 30 days to make that decision.