Ramon Lopez/WASHINGTON DC
Lockheed Martin and the US Department of Justice (DoJ) are heading for a courtroom showdown over the defence giant's proposed merger with Northrop Grumman after failure to agree a massive programme of divestitures to satisfy competition concerns.
Lockheed Martin says that it had offered to divest up to $1 billion of assets in an attempt to smooth DoJ and Department of Defense (DoD)fears over the merger, but the company says that the competition watchdog had demanded disposals accounting for over half of Northrop Grumman's $9.1 billion annual sales.
The Government's demands for divestitures, which are unprecedented in size and scope, "undermine the economic viability of the transaction", says Lockheed chief executive Vance Coffman and his Northrop Grumman counterpart, Kent Kresa, in a joint statement.
The DoJ has left the door open for further negotiations, but says that there is a "significant gap" between the two parties.
US Attorney General Janet Reno says that the proposed merger would "-take the competitive wind out of the sails of innovation in the production of many critical [weapons]". William Cohen, the US defence chief, says that the acquisition would "-increase market concentration and adversely affect competition in critical areas of defence electronics".
He adds that the merger proposal is the most difficult that the US Government has had to handle since the end of the Cold War, when the US defence industry began consolidating. "No previous merger has raised so many interrelated problems across so many markets."
Coffman and Kresa still insist that the merger offers the potential for $1 billion of annual savings for the US Government, which now could be lost. They go on to argue that the combined companies would account for less than 25% of defence electronics purchased by the DoD, which would be "-well below levels that should create antitrust concerns".
Northrop Grumman is to take a pre-tax charge of $180 million in the first quarter because of the costs related to the contested merger.
Even without the latest merger, however, Lockheed Martin has again emerged at the top of the DoD's latest list of US defence contractors. The group received prime contracts worth $11.6 billion during fiscal year 1997 and the acquisition of Northrop Grumman would have stretched its lead further, adding $3.5 billion.
Boeing leaped to second place in the wake of its McDonnell Douglas acquisition, but was still just below $10 billion.
Source: Flight International
