Balance in Antitrust Issue

It was not so long ago that the Justice Department accepted--and the Pentagon encouraged--the multibillion-dollar mergers that were the defense industry’s answer to surviving in the post-Cold War era. Now the government is doing an about-face, and with good reason: Just four firms control the bulk of weapons sales and defense research today.

Contending that Lockheed Martin Corp.’s $11.6-billion acquisition of Northrop Grumman Corp. would reduce competition and sources of critical products used in national defense, the Justice Department sued to block the deal. The antitrust issues arise in this case because of the vast consolidation that has occurred already in the defense industry. There were as many as 50 main defense contractors during the defense buildup of the Reagan administration, but that sector began to collapse as national priorities changed in the late 1980s.

The government said the merger would “result in unprecedented vertical and horizontal concentration,” lessening or eliminating competition in defense technologies from airborne radar to electronic defense systems for jet fighters. The government contends that less competition could reduce product innovation and push up prices, thus costing taxpayers more. In Southern California, hundreds if not thousands of jobs could be at risk.

The government’s interest also reflects a newly aggressive attitude in the Clinton administration toward mergers in general. It red-flagged other recent proposed combinations ranging from office product firms to major drug wholesalers and pharmaceutical companies on the grounds that consumer prices probably would rise. The Lockheed-Northrop deal is of special interest to the government because the military is the biggest customer of the companies and stands to lose the most with less competition.

So far, the companies have been unwilling to fully comply with the government’s request that they divest virtually all of Northrop’s defense electronic programs, the very business that makes Northrop so attractive to Lockheed. They have vowed to fight for the merger in court. The preferable solution is a compromise that addresses the antitrust concerns and balances the strategic business interests of the companies with the national interest. Now that the companies know the depth of the government’s opposition, they should restructure the deal.

The federal government ought to be more careful, however, about spinning rhetoric: “It’s about winning wars and savings lives,” said Atty. Gen. Janet Reno. That kind of oversimplification is a disservice to the corporations and the public on antitrust issues of this scale and complexity.