Pentagon Warns on Mergers After Lockheed-Sikorsky Dealby
With `size comes power,' chief weapons buyer Kendall says
Defense Department may work with Congress to damp takeovers
The U.S. Defense Department doesn’t want to see large-scale acquisitions winnow its prime contractors following Lockheed Martin Corp.’s $9 billion purchase of Sikorsky, the biggest military helicopter supplier.
Warning that with “size comes power,” acquisition chief Frank Kendall said the Pentagon will work with the Justice Department and Congress to preserve a diverse industrial base. Defense Secretary Ashton Carter also expressed concern over "excessive consolidation."
“One can foresee a future in which the department has at most two or three very large suppliers for all the major weapons systems that we acquire,” Kendall told reporters Wednesday. “The department would not consider this to be a positive development and the American public should not either.”
The statements reiterate policy staked out in 2011 opposing mega-mergers of top-tier defense firms, and were issued as the U.S. Air Force nears its award of the contract for a new long-range bomber. Some analysts have said that program may spur a tie-up of aircraft manufacturers Boeing Co. and Northrop Grumman Corp.
Lockheed, the world’s biggest defense contractor, disputed the Pentagon’s suggestion that merged companies wouldn’t be nimble competitors. “There is no evidence to support the view that larger defense companies reduce competition or inhibit innovation," the company said by e-mail.
U.S. defense stocks extended their gains after Kendall’s remarks, led by a 2.4 percent rally for Raytheon Co. All 11 stocks in the Standard & Poor’s 500 Aerospace and Defense Index rose.
Kendall wouldn’t elaborate on possible ways the Pentagon and Congress might discourage future dealmaking. The Pentagon’s stance doesn’t affect Lockheed’s takeover of Sikorsky, the United Technologies Corp. unit, he said. That transaction doesn’t involve direct competitors and was approved earlier this month by the Justice Department.
The deal “moves a high percentage of the market share for an entire line of products -- military helicopters -- into the largest defense prime contractor, a contractor that already holds a dominant position in high-performance aircraft due to the F-35 winner-take-all approach adopted over a decade ago,” Kendall said.
“Mergers such as this, combined with significant financial resources of the largest defense companies, strategically position the acquiring companies to dominate large parts of the defense industry,” Kendall said.