November 13, 2018 / 11:08 PM / a month ago

Pentagon official: 'No fundamental concern' over defense consolidation

BERLIN (Reuters) - The U.S. government is still reviewing a merger of Harris Corp and L3 Technologies, a top Pentagon official said on Tuesday, adding that she had no fundamental concerns about further consolidation in the U.S. defense sector.

Undersecretary Ellen Lord told Reuters that the Defense Department was carrying out a detailed process together with antitrust authorities to determine if the proposed merger would “be problematical in terms of the competitive landscape.”

“We’re working through the process. We look at deals based on the individual merits,” Lord said on the sidelines of a NATO industry conference. She said the chief executives of both companies had contacted her about their plans “very professionally” before announcing the deal.

Harris and L3, maker of military communications equipment and other weapons, on Oct. 14 said they planned an all-stock merger that will create the sixth-largest U.S. defense contractor with a market value of $34 billion.

The combined company, L3 Harris Technologies Inc, will have about 48,000 employees and customers in over 100 countries, the companies said. The merger is expected to close in mid-2019.

Asked if she was concerned that the merger would result in excessive consolidation in the sector, Lord said, “I have no fundamental concerns.”

Asked whether a subsequent merger involving the new company would spark concerns, she said: “No conjecture.”

For years, the Pentagon discouraged consolidation among top-tier weapons makers, while welcoming deals among smaller players. In 2015, then-Defense Secretary Ash Carter warned that further consolidation in the weapons industry could lead to higher costs, decreased innovation and less competition.

Those comments came days after the U.S. Justice Department approved Lockheed Martin Corp’s $9 billion acquisition of Sikorsky Aircraft, a unit of United Technologies Corp, which at the time was one of the biggest acquisitions in the weapons industry in years.

Mergers have been increasing in recent months given rising military spending under U.S. President Donald Trump, with contractors keen to bulk up so they can bid for bigger projects.

In June, Northrop Grumman Corp acquired Orbital ATK Inc for about $7.8 billion, and General Dynamics Corp bought CSRA Inc for $9.7 billion to expand its government services in April.

Reporting by Andrea Shalal; Editing by Leslie Adler

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