(Bloomberg) — U.S. antitrust regulators sued to block Lockheed Martin Corp.’s $4.4 billion acquisition of Aerojet Rocketdyne Holdings Inc. as the Biden administration signaled that it will be tough on deals that could reduce defense-industry competition.
Aerojet’s shares plunged the most in nearly two years.
The deal would “harm rival defense contractors and further consolidate multiple markets critical to national security and defense,” the Federal Trade Commission said Tuesday.
“This deal would give Lockheed the ability to cut off other defense contractors from the critical components they need to build competing missiles,” Holly Vedova, the head of the FTC’s Bureau of Competition, 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.”
The move came several hours after Lockheed had said that the FTC was “highly likely” to oppose the transaction.
Aerojet tumbled 18% at 11:14 a.m. in New York, declining the most intraday since March 2020. Lockheed rose less than 1%.
The deal marks an early litmus test for President Joe Biden’s push to take a tougher stance against mergers and combat rising consolidation across the economy. It is the second major merger challenge under FTC Chair Lina Khan, who has vowed to pursue a more aggressive competition agenda.
In December, the FTC sued to block Nvidia Corp.’s purchase of Arm Ltd. from SoftBank Group Corp. Now Nvidia is quietly preparing to abandon the $40 billion deal after making little to no progress in winning approval, Bloomberg News reported Tuesday, citing people familiar with the matter.
Lockheed and Aerojet had agreed 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 had defended the tie-up as beneficial for the “United States and its allies, the industry” and stakeholders.
Taiclet Foray
The 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.
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 FTC suit beginning in first paragraph)
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