(Bloomberg) — Aerojet Rocketdyne Holdings Inc. shares dropped the most in almost two years after Lockheed Martin Corp. said its bid to acquire the longtime supplier will probably be blocked by antitrust regulators.
The U.S. Federal Trade Commission is “highly likely” to vote to sue to block the transaction in the next two days, Bethesda, Maryland-based Lockheed said in a statement with its earnings report Tuesday.
Aerojet tumbled 15% to $37.37 at 9:55 a.m. in New York after declining 16%, the most intraday since March 2020. Lockheed rose 1% to $377.11.
The two companies said in separate statements that they had agreed with the FTC not to close the transaction before Jan. 27 to enable discussions about the “scope and nature of the merchant supply and firewall commitments” previously offered by Lockheed. They defended the tie-up as beneficial for the “United States and its allies, the industry” and stakeholders.
The $4.4 billion acquisition plan was the first major strategic foray by Jim Taiclet after he became chief executive officer at Lockheed in 2020. The deal, announced just six months into his tenure, would have combined Aerojet’s expertise in rocket motors with Lockheed’s arsenal of missile-defense batteries and hypersonic vehicles. It was seen as an early litmus test of whether U.S. President Joe Biden would keep consolidation among defense contractors in check.
The acquisition’s demise should have limited financial impact for Lockheed since it’s not baked into the company’s financial forecasts, said Nick Cunningham, an analyst at Agency Partners. “But it would be a blow to the still relatively new management, who own this deal,” he wrote in a note to clients.
The FTC is taking a tough stand on other deals as well. Nvidia Corp. is quietly preparing to abandon its purchase of Arm Ltd. from SoftBank Group Corp. after making little to no progress in winning approval for the $40 billion chip deal, Bloomberg News reported Tuesday, citing people familiar with the matter. The FTC sued to stop the transaction in December, arguing that Nvidia would become too powerful if it gained control over Arm’s chip designs.
Lockheed rival Raytheon Technologies Corp. has objected to the Aerojet pact, in part because it would put one of its major suppliers in the hands of a competitor, and urged the FTC to block the deal. U.S. Senator Elizabeth Warren also warned about the harm to the defense sector if the last major U.S. rocket propulsion manufacturer were to be swallowed up by the world’s largest defense company.
Biden in July issued a broad order directing U.S. agencies to take steps to boost competition, urging the FTC, the Justice Department and other regulators to increase antitrust scrutiny.
(Updates with analyst’s comment in sixth paragraph)
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