Justice Dept. OKs Raytheon’s Merger With Hughes Aircraft

Raytheon Co. and Hughes Aircraft Co. got federal clearance Thursday for a $9.5-billion merger creating the nation’s third-largest defense contractor, provided that Raytheon sells two advanced electronics divisions and takes steps to preserve competition in missile production.

The Justice Department’s antitrust division approved the merger when Raytheon agreed to sell its Dallas-based unit that produces infrared missile guidance systems and Hughes’ operations in El Segundo and La Grange, Ga., that make guidance devices for tank-fired missiles.

Raytheon’s shares rose 69 cents to a 52-week-high of $60.25 Thursday on the New York Stock Exchange. Class H shares of General Motors Corp., Hughes Aircraft’s parent company, rose 94 cents to close at $67.75, also on the NYSE.

When combined, Raytheon and Hughes will have more than $21 billion in annual revenue, trailing Lockheed Martin Corp. and Boeing Co. as the largest survivors in a seismic consolidation of the defense industry triggered by the end of the Cold War six years ago.

Raytheon agreed to keep “fire walls” separating Raytheon and Hughes divisions that are the only bidders to develop a new generation of Army battlefield missiles.

Joel I. Klein, head of the Justice Department’s antitrust division, said the agreement shows the government’s “absolute determination” to protect competition in a concentrated defense industry.

William Kovacic, a law professor and antitrust specialist at George Mason University in Fairfax, Va., said, however, that there are “real questions about how effective fire walls will be in practice.”

For Raytheon and other giant contractors, the price of these huge mergers will be an increasing level of government scrutiny and regulation, Kovacic said.