FTC Moves to Block Lockheed Buying Aerojet Rocketdyne

Updated 12:47 p.m. ET to add Sen. Warren's statement.

The Federal Trade Commission said it would sue to block Lockheed Martin’s long-proposed $4.4 billion acquisition of Aerojet Rocketdyne.

“The agency’s 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,” the FTC said in a statement on Tuesday.

Lockheed could defend the acquisition of the rocket manufacturer in court or back away from the deal.

"We will review the lawsuit and evaluate all of our options," Taiclet said Tuesday on the company’s quarterly earnings call. 

Antitrust regulators are unhappy with the structure of a Lockheed proposal that would allow it to provide rocket engines to its competitors, the company said in a securities filing earlier Tuesday.

“We have been advised by the FTC that its concerns regarding the transaction cannot be addressed adequately by the terms of a consent order,” Lockheed said in a Tuesday SEC filing. “We believe it is highly likely that the FTC will vote to sue to block the transaction and expect they will make a decision before January 27, 2022.” 

Lockheed has 30 days to determine whether it will go to court or terminate the deal, which was announced in December 2020. At the time, it was seen as being an early test of how the Biden administration would handle defense mergers and acquisitions.

“Aerojet Rocketdyne continues to believe in the benefits of the transaction for the United States and its allies, the industry, and all of the company’s stakeholders,” the company said in a statement. 

The announcement comes as the Pentagon is playing catch-up to China and Russia in its fielding of hypersonic weapons. Aerojet Rocketdyne is a key hypersonic weapon supplier. Lockheed has said buying Aerojet would allow it to move quicker in its hypersonic weapon development.

“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,” the FTC said. “As a subcontractor, Aerojet also has had access to prime contractors’ sensitive information about technological advancements, cost, schedule, and business strategies. The complaint 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.”

Sen. Elizabeth Warren, D-Mass., who opposed Lockheed’s acquisition of Aerojet, said she supported FTC commissioners’ unanimous decision to block the deal.

“After decades of mergers, the defense industry is left with a few giant firms that aim to buy up key suppliers and stomp out competition,” Warren said in an emailed statement. “I support the FTC taking aggressive action to oppose further corporate concentration in the defense industry that could threaten U.S. national security.”

Lockheed rival Raytheon Technologies, which buys rocket motors from Aerojet Rocketdyne and is based in Massachusetts, has been a vocal opponent of the sale.

“Having a strategic supplier like that owned by our biggest competitor we thought would be problematic from a competition standpoint,” Raytheon CEO Greg Hayes said on CNBC Tuesday morning. “You go with a consent decree, it's still problematic in terms of who gets the supply when there's a shortage because is it going to be the company that owns you, or the other company that you have to supply in the marketplace.”

The Trump administration allowed Northrop Grumman to buy rocket-maker Orbital ATK with a condition that it provide rocket motors to its competitors. Boeing said Northrop’s acquisition of Orbital ATK prevented it from bidding on an $85 billion Air Force intercontinental ballistic missile contract.

“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,’ Byron Callan, an analyst with Capital Alpha Partners, wrote in a note to investors Tuesday. “We don’t, however, see the current FTC move as one that throws defense [mergers and acquisitions] into the deep freeze.”