How Pentagon Reached Merger Detente With Antitrust Agencies

Updated on
  • Weapons buyer Kendall collaborated on Justice-FTC statement
  • Defense Department then withdrew proposal for new legislation

First, the U.S. Justice Department and Federal Trade Commission produced a joint statement reaffirming that their reviews of defense industry mergers will ensure that the military receives “the most effective and innovative products at competitive prices.”

Shortly after that seemingly anodyne press release on April 12, the Defense Department said it was withdrawing its request for legislation intended to elevate national security concerns in the review of proposed mergers among U.S. defense contractors.

The reason, the Pentagon’s top weapons buyer said Wednesday, was that the antitrust enforcers assured him they would give adequate weight to such issues. In the process, a conflict among federal agencies on antitrust enforcement may have been averted.

“I’m comfortable withdrawing my legislative initiative based on the position they clarified,” Undersecretary of Defense Frank Kendall said in an interview.

The Justice Department and FTC declined to comment.

Sikorsky Acquisition

Kendall has been increasingly vocal about the potential loss of competition among defense contractors after Lockheed Martin Corp.’s $9 billion purchase of United Technologies Corp.’s Sikorsky helicopter unit last year.

While Kendall said at the time that he didn’t oppose Lockheed’s Sikorsky deal because it wasn’t a merger of direct competitors, he added, “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 said he collaborated on the Justice-FTC statement after the agencies clarified that “there’s more discretion than I had assumed” for them to consider national security as they review standard questions, such as whether a merger harms consumers by reducing competition.

In their joint statement, the Justice Department and the FTC said that “if a transaction threatens to harm innovation, reduce the number of competitive options needed by DoD, or otherwise lessen competition, and therefore has the potential to adversely affect our national security, the agencies will not hesitate to take appropriate enforcement action, including a suit to block the transaction.”

“I’m happy with the result,” Kendall said.

— With assistance by David McLaughlin

(Updates with agencies declining to comment in fifth paragraph.)
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