Lockheed Martin abandons Aerojet Rocketdyne


Lockheed Martin, the world’s largest defense company by sales, had hoped to add Aerojet’s expertise in building rocket engines for its own missile and space systems. The proposed deal drew fire from the Federal Trade Commission and rivals who believed the combination could stifle competition.

Lockheed Martin announced its intention to buy Aerojet Rocketdyne in December 2020. The deal follows unsuccessful efforts by Aerojet Rocketdyne to buy a joint venture between Lockheed Martin and Boeing Co.

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which launches military satellites. This has sparked wider interest in acquiring the company, including from private equity firms, according to regulatory filings.

Closing of the proposed Lockheed-Aerojet deal has been repeatedly pushed back, particularly after FTC officials raised concerns about its impact.

A lawsuit filed last month by the FTC to block the deal saw Lockheed abandon the deal on Sunday, a move the company says was made in the broader interests of shareholders.

Aerojet is the only major independent US producer of rocket and missile engines.


Photo:

Sarah Reingewirtz/Los Angeles Daily News/Getty Images

“Our planned acquisition of Aerojet Rocketdyne would have benefited the entire industry through greater efficiency, greater speed and significant cost reductions for the U.S. government,” the Lockheed Martin chief executive said Sunday. , Jim Taiclet, in a press release.

Aerojet, based in El Segundo, Calif., is the only major independent US producer of rocket and missile engines. The FTC alleged that allowing Lockheed to buy Aerojet would give the defense giant the ability to deny other defense contractors access to critical components needed to build competing missiles and space systems.

“We are confident in our future performance with an impressive backlog that is more than three times the size of our annual sales and a strong macroeconomic environment that underpins our portfolio,” Aerojet Rocketdyne said.

An FTC spokeswoman had no immediate comment. The commission’s four current commissioners, two Democrats and two Republicans, have all voted for the lawsuit.

It is the second deal to fall apart in recent days in the face of an antitrust challenge from the FTC. Nvidia Corp.

and the Japanese group SoftBank Corp.

earlier this month scrapped a blockbuster deal for the US semiconductor giant to acquire chip design specialist Arm, a deal the commission challenged in December, again unanimously.

Aerojet manufactures rocket boosters for missile defense systems such as Lockheed’s own Thaad program. Aerojet Rocketdyne is also working on programs such as replacing land-based nuclear missiles led by Northrop Grumman Corp.

and the Boeing-led Space Launch System space taxi and rocket.

Lockheed Martin is one of Aerojet Rocketdyne’s biggest customers, and the companies had said they could continue after a merger to supply rocket engines that Aerojet supplied to other companies such as Boeing Co. and Raytheon Technologies Corp.

Lockheed and Aerojet Rocketdyne have also said Lockheed ownership could spur investment in areas such as hypersonic missiles to challenge growing capabilities in China and Russia, worrying Pentagon leaders.

Raytheon and others said they were concerned about how those promises would be implemented. In 2019, Boeing dropped a bid to supply new land-based nuclear missiles to the United States. The company cited a perceived benefit to Northrop Grumman after it agreed in 2017 to buy Orbital ATK Inc., a provider of space propulsion and missile systems.

Lockheed Martin’s plan to buy Aerojet Rocketdyne has faced opposition from some defense contractors concerned about the future availability of rocket engines. The companies had offered a series of guarantees to continue supplying Aerojet equipment to other defense contractors, but said these were deemed insufficient by the FTC.

The commission argued that the deal would hurt rival defense contractors and lead to unacceptable consolidation in markets critical to national security and defence.

The FTC said it consulted widely with the Pentagon on the impact of the proposed deal. The views of the Department of Defense were redacted in a public version of the commission’s trial. The Pentagon did not immediately respond to a request for comment.

Four years ago, antitrust authorities cleared a similar defense industry deal involving two other military contractors. The FTC has since taken a tougher stance on transactions involving vertical integration of companies and their suppliers, sometimes with notable bipartisan support, including in this case.

Analysts said Northrop Grumman’s acquisition of Orbital ATK made Aerojet Rocketdyne a potential target for Lockheed Martin or Boeing, which are partners in space joint venture United Launch Alliance.

The Orbital ATK deal was approved in 2018 with conditions by antitrust authorities. Consolidation in the US defense industry has continued in recent years, particularly among companies that provide services rather than supplies.

Aerojet Rocketdyne could still attract interest from private equity firms and smaller defense contractors, analysts said. The company did not comment, but said it would provide a strategy update when it reports quarterly results on Feb. 17.

Lockheed Martin’s challenge to the planned deal sparked a battle at Aerojet Rocketdyne, including a proxy fight involving an investment firm linked to its chairman, Warren Lichtenstein, which proposed a new slate of directors. Aerojet also announced on February 1 an internal investigation into Mr. Lichtenstein.

The company said that included Mr Lichtenstein allegedly pressuring executives to change financial guidance as early as 2020, according to a legal filing last week.

Steel Partners Holdings LP, an investment firm controlled by Mr Liechtenstein, said he had ‘acted with integrity and transparency throughout his tenure on the board and said the allegations were unfounded “. The company owns a 5.5% stake in Aerojet Rocketdyne and is leading the proxy fight.

Write to Doug Cameron at doug.cameron@wsj.com and Brent Kendall at brent.kendall@wsj.com

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