Plan to Merge Defense Units Stirs Concerns Over Power
Aerospace industry executives have voiced concerns to senior Pentagon officials that the proposed merger of Raytheon with Hughes Electronics and Texas Instruments’ defense operations would create a monopoly in certain markets, defense industry sources say.
Northrop Grumman and Lockheed Martin have both met with Defense Department officials in the last week to discuss how the two Raytheon deals would change the competitive landscape in the defense industry, company officials acknowledged Tuesday.
“There are areas of concern and we have expressed those concerns to appropriate regulators,” Northrop spokesman Tony Cantafio said.
Lockheed spokesman Chip Manor confirmed that the company has met with senior Defense Department officials, but characterized the meeting only as providing information about “what the company buys and where it buys it.”
Separately, three U.S. senators have sent letters to Defense Secretary William Cohen and to Justice Department officials, raising concerns about potential anti-competitive effects in the Raytheon deal.
“I hope that the Defense Department will examine carefully the proposed merger . . . to ensure that anti-competitive practices in fact do not occur,” Sen. Robert Torricelli (D-N.J.) wrote last week to Cohen.
General Motors stockholders have sued to block the sale of GM’s Hughes defense units to Raytheon. The four lawsuits, filed Feb. 5-6 in Delaware Chancery Court but not made public until this week, seek class-action status. They claim the sale of Hughes will cheat GM’s Class H shareholders out of a 20% premium they were promised by the auto maker if Hughes was sold.
Federal regulators and Defense Department officials have declined to block any of the major defense industry mergers. But the Raytheon deal, coupled with the proposed acquisition of McDonnell Douglas by Boeing, will determine the shape of the defense industry for the foreseeable future.
Raytheon has agreed to acquire the Hughes defense units for $9.5 billion and those of Texas Instruments for $2.95 billion, creating what some analysts consider the most potent defense electronics operation in the world.
The Justice Department, which is reviewing the two Raytheon deals, last week extended its reviews for an additional 30 days. Its decision will be based, in part, on a recommendation from the Pentagon.
The Pentagon, in turn, is relying on an analysis now being done by John B. Goodman, deputy under- secretary of defense for industrial affairs and installations. The Northrop and Lockheed meetings were with Goodman.
Raytheon spokesman Bob McWade vigorously denied that the company’s two deals would give it control of any markets and said Raytheon has not received any indication that the federal government is taking a critical view of the acquisitions.
Executives from Northrop Grumman and Lockheed Martin have told senior Defense Department officials that Raytheon would be the sole supplier of certain key radar components, known as monolithic microwave integrated circuits and transmit/receive modules, according to an industry executive.
The electronic component sales would give Raytheon an intimate knowledge of the design and specifications of weapons systems that are subject to competition between Raytheon and the other companies, the executive said.
