Lockheed Martin Corp. and Northrop Grumman Corp. were barred by a federal judge from seeing key documents in the U.S. government's antitrust challenge to the companies' proposed $11.18-billion merger.
The surprising ruling threatens the transaction, analysts said, and increases prospects the companies will seek a settlement. However, some said the divestitures the Justice Department is demanding could prompt the defense contracting giants to abandon their proposed union altogether.
U.S. District Judge Emmet Sullivan allowed the government to withhold more than 2,000 confidential Pentagon documents. The companies argued the material could help them win the case by showing many in the Defense Department believe the merger would not harm competition.
"The court finds the defendants are not entitled to the opinions contained in the documents," Sullivan said. He ruled the material is shielded by a variety of legal protections.
"We're disappointed. We're also surprised," said Charles Manor, a spokesman for Bethesda, Md.-based Lockheed Martin. "It will make our job difficult going forward. We are still committed to the merger. We have a high degree of confidence our case will prevail."
The ruling could spur a new round of settlement talks between the Justice Department and the companies.
Manor said the company was considering an appeal.
Los Angeles-based Northrop's shares dropped $2.75 to $105.75 and Lockheed Martin fell 31 cents to $110.06. Both trade on the New York Stock Exchange.
"This is worse news for Northrop than it is for Lockheed," said William Kovacic, an antitrust expert at George Mason University's law school. "They are telling the world we are doomed to atrophy in the future" unless the transaction closes.