Defense deal crackdown is a bipartisan affair

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NEW YORK, Jan 25 (Reuters Breakingviews) - Even the military-industrial complex can’t overcome antitrust zeal. Since taking over the U.S. Federal Trade Commission, Lina Khan has turned up the heat on competition enforcement in ways that were historically at odds with Republican members of the regulatory agency. Her latest victory, securing a majority to block U.S. defense giant Lockheed Martin’s (LMT.N) $4.4 billion deal read more for rocket maker Aerojet Rocketdyne (AJRD.N), has even convinced Republicans to take on an industry that’s used to getting its way.

Khan, who was appointed by U.S. President Joe Biden in June, has made clear her opposition to consolidation in industries such as oil and gas, but defense deals were murkier. Having a strong industry has national security benefits, and the U.S. Department of Defense is often a large customer of American companies. So historically mergers have gotten a pass. In 2018, Northrop Grumman (NOC.N) won approval on its rockets acquisition of Orbital ATK, despite the agency’s misgivings about potential harms to competition, because the FTC saw “benefits” for the DOD.

In the abstract, there are reasons Lockheed’s deal would give watchdogs pause. Aerojet is the last major independent U.S. supplier of solid rocket motors, and Lockheed’s takeover would give it control over a critical supplier to its competitors. Still, Lockheed boss James Taiclet has warned that blocking his acquisition could offer an advantage to China, which has outpaced the United States in developing so-called hypersonic weapons – a key area for Aerojet Rocketdyne.

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Republicans, who controlled the agency in 2018, still play a key role today. The Commission currently has four members, split evenly between Democrats and Republicans. And on Tuesday, the FTC announced that it would sue to block Lockheed’s acquisition, saying that it would harm rival defense contractors dependent on Aerojet’s products. The vote was unanimous and comes shortly after the commissioners agreed to sue to block U.S. chip giant Nvidia’s (NVDA.O) $40 billion acquisition of Arm.

It is an about-face from the agency’s historical deference to the defense industry and a major victory for Khan. Not only were Republicans on board with cracking down, it was in an industry that typically has been an antitrust grey area. By steadily building consensus on mergers, the area of FTC enforcement that has the most immediate impact on market concentration, Khan single-handedly dashes hopes for others trying to sneak deals through.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


- On Jan. 25, the United States Federal Trade Commission said that it would sue to block defense contractor Lockheed Martin from acquiring rocket maker Aerojet Rocketdyne. Lockheed Martin has 30 days to decide on whether to litigate in defense of the deal.

- Aerojet Rocketdyne, the only remaining large, independent supplier of solid-rocket motors for the defense industry, initially agreed to be acquired by Lockheed Martin in a $4.4 billion deal on Dec. 20, 2020. On Feb. 17, 2021, Gregory Hayes, chief executive of defense contractor Raytheon Technologies, said that he had concerns about the deal.

- The FTC currently has only four sitting commissioners, two Democrats and two Republicans, requiring a bipartisan vote to secure a majority. All four previously voted unanimously on Dec. 2, 2021 to block chip giant Nvidia’s proposed $40 billion acquisition of Arm.

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Editing by Lauren Silva Laughlin and Sharon Lam

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