Feds Seek to Stop Lockheed Deal

The Justice Department has asked a federal court to prevent the proposed $9 billion merger of Lockheed Martin Corp. and Northrop Grumman Corp.

At a press conference this afternoon, Attorney General Janet Reno said the proposed combination of the two defense giants was the largest merger the government had ever challenged. "We allege that the proposed merger would substantially reduce competition in many areas of vital importance to America's national defense," Reno said. "It would cost taxpayers more and take the competitive wind out of the sails of innovation in the production of many critical systems that protect our fighting men and women around the world."

The government asked Lockheed and Northrop officials last week to come up with a divestiture plan to protect competition in key defense sectors, including radar systems production. The government wanted the companies to spin off businesses with annual sales near $4 billion. The two companies had offered a plan to divest businesses worth $1 billion, which the government rejected.

Defense Secretary William Cohen said at the press conference that the Pentagon is worried about "vertical integration" in the defense industry, which he described as "firms that are able to produce subsystems or components that go into the products they sell."

"The proposed merger creates unprecedented problems of vertical integration," Cohen said. "Combining Lockheed Martin's strength in platforms and systems with Northrop Grumman's considerable electronics and platform capabilities creates a significant risk to competition at the supplier level."

Company officials have said they will "vigorously oppose any attempt to block the transaction."

Lockheed Martin is the government's largest contractor, with nearly $20 billion in federal contract awards in fiscal 1996, according to Government Executive's annual Top 200 Federal Contractors report. Northrop Grumman ranked sixth, with more than $3.5 billion in federal contracts. The proposed merger follows a series of other mega-mergers of federal contractors in the past decade, which culminated in Boeing's acquisition of McDonnell Douglas last year.