Northrop Shares Fall Amid Merger Woes
Northrop Grumman shares continued to slide in trading Thursday, reflecting continuing investor concern about the outcome of its merger with Lockheed Martin.
Meanwhile, senior government officials outlined for the first time the tough hand they have dealt the two companies, asserting that the merger would cause serious competitive harm in a range of defense electronics markets.
The Defense Department and Justice Department review of the merger found that it would adversely affect competition in two out of 18 key defense electronics markets under examination, senior officials said in a briefing at the Pentagon. “There is concern across the board,” an official at the briefing said.
When Lockheed and Northrop were given the findings of the antitrust review last Friday, they said the government was “fundamentally opposed” to the deal. If the $11.6-billion merger were completed, Lockheed would hold 24% of the defense market.
Indeed, the review examined three options for resolving the government’s antitrust concerns: block the deal, require a massive $4-billion divestiture of all of Northrop’s electronics business, or force a narrower divestiture of Northrop businesses worth several hundred million dollars.
Two of those three options are deal breakers, and even the third option of a limited divestiture has the potential to kill the merger, experts say.
Lockheed spokesman Charles Martin said the firm is still talking with the government and expects to respond with a counterproposal.
The analysis found that the entire market for airborne early- warning radar would be controlled by Lockheed Martin; the same holds true for electrooptical missile warning systems and countermeasures for infrared weapons, as well as some naval systems.
The deal also would increase vertical integration, giving Lockheed Martin the power to lock out competing suppliers in such markets as aircraft, radar, electronic warfare, surface warfare and space payloads, the review showed.
Lockheed Martin officials say the deal is good news for the Pentagon, because it would save $1 billion annually by eliminating overlap and excess capacity.
Lockheed shares fell $1.44 to close at $114.69, and Northrop shares dropped $1.56 to $113.69. Both trade on the New York Stock Exchange. Northrop has lost 18% of it stock value from its 52-week high of $139.
