FTC Approves Lockheed-Loral Merger
The Federal Trade Commission approved Thursday the $9.1-billion merger of Lockheed Martin Corp. and Loral Corp., a move that will turn two defense giants into a single behemoth.
The unanimous approval came hours after the Pentagon released a letter endorsing the deal and saying it would have little impact on the government’s ability to buy weapons from competing sources.
The deal amounts to a settlement of charges filed earlier by the FTC that the deal would violate antitrust laws by reducing competition in several weapons and high-technology markets, including fighter jets, air traffic control systems, satellites and unmanned aerial vehicles used by the military for reconnaissance.
In a letter to the FTC, which has final say, Deputy Defense Secretary John White said the Pentagon had settled some of its concerns about buying goods competitively through negotiations with the two companies.
“We will continue to be able to maintain adequate competition for Department of Defense purchases,” White said in the letter to FTC Chairman Robert Pitofsky. “Equally important, we determined that the transaction will provide substantial savings and cost avoidance for the department.”
Under the deal, first announced in January and expected to be finalized Monday, Lockheed Martin, the largest and most diverse U.S. military contractor, will buy most of Loral, a leading maker of defense and aerospace electronics and computer systems, for about $9.1 billion.
Loral is based in New York; Lockheed Martin in suburban Bethesda, Md.
On the New York Stock Exchange, Lockheed Martin dipped 75 cents to $74.875; Loral slid 75 cents to $50.25.
If the deal goes through, Lockheed Martin will receive a $175 million breakup fee.
Lockheed Martin, with about 165,000 workers, has eliminated 19,000 jobs since its creation in 1994, but executives said they do not expect to make massive further cuts after absorbing Loral, which employs 38,000.
Lockheed Martin, itself the product of a merger, makes the F-16 fighter and is developing the F-22 stealth fighter, one of the top Pentagon procurement programs. It is also the No. 1 rocket builder in the United States and, like Loral, has electronics and satellite businesses. The company had $22.9 billion in revenue last year.
Although Loral made the bulk of its $6.7 billion in revenue last year from defense sources, its businesses are highly diversified, including radar jamming electronics for jet fighters, missile systems, flight simulators, aircraft data and voice recorders and air traffic control systems. Combined, the companies would take in about $30 billion a year.
As part of the transaction, Loral’s space and telecommunications business would be transferred to a new entity, Loral Space & Communications Ltd., with Lockheed Martin purchasing 20% equity in Loral space.
Among other terms of the settlement:
* Lockheed Martin will divest its systems engineering and technical services contract with the Federal Aviation Administration.
* Lockheed Martin will be prohibited from providing certain technical services or information to Space Systems/Loral, a subsidiary of Loral Space & Communications Ltd.
* Compensation of executives from both companies will be restricted.
* Business information “firewalls” will be put up to limit the flow of competitive information between the two entities about tactical fighter aircraft and unmanned aerial vehicles.
