FTC chair urges blocking more M&A as Lockheed deal looms

Lina Khan sitting behind a clothed table.
Lina Khan at her Senate committee confirmation hearing in April.
(House of Representatives)

The head of the Federal Trade Commission said antitrust enforcers should more frequently move to block mergers that threaten competition rather than relying on traditional remedies to fix deals and then approve them, a view that may weigh on a major acquisition by defense giant Lockheed Martin Corp.

FTC Chair Lina Khan outlined her concerns about common measures used by the Justice Department and the FTC to settle merger investigations in a letter to Sen. Elizabeth Warren of Massachusetts, who had written to the agency about deals in the defense industry.

The comments come as the FTC is investigating Lockheed’s $4.4-billion deal to purchase Aerojet Rocketdyne Holdings Inc., a takeover seen as an early litmus test of whether President Biden will keep mergers among defense contractors in check.

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Khan said she’s skeptical of the practice of imposing conditions on how companies operate, known as behavioral remedies, but also said asset divestitures — the most common way that companies win approval for mergers — can be problematic.

“While structural remedies generally have a stronger track record than behavioral remedies, studies show that divestitures, too, may prove inadequate in the face of an unlawful merger,” Khan wrote in the letter dated Aug. 6 that was reviewed by Bloomberg News. “In light of this, I believe the antitrust agencies should more frequently consider opposing problematic deals outright.”

The letter is the latest look into Khan’s vision for the FTC since Biden named her chair in June. She has taken steps to beef up enforcement and has warned companies proposing mergers that the FTC could investigate and challenge their deals even after an initial review period expires.

The Lockheed-Aerojet deal would combine Aerojet’s expertise in rocket motors with Lockheed’s arsenal of missile-defense batteries and hypersonic vehicles. Raytheon Technologies Corp. has objected to the pact, in part because it would put one of its major suppliers in the hands of rival Lockheed, the world’s largest defense contractor. Warren, a Massachusetts Democrat, also has warned of harm to the defense sector if the last major U.S. rocket propulsion manufacturer were to be swallowed up by Lockheed.

In a July 16 letter to the FTC, Warren urged regulators “to re-evaluate the best method to protect competition when analyzing vertical deals, including not allowing such transactions to proceed in the first place.” She noted that the agency was probing the competitive effects of Northrop Grumman Corp.’s 2018 takeover of Orbital ATK Inc., the other large U.S. rocket engine manufacturer.

“Given the waves of defense industry mergers that have slashed competition and reduced the number of major firms tenfold,” Warren said in response to Khan’s letter, “both the FTC and Congress need to make major antitrust reforms in order to protect national security and cut costs for American taxpayers.”

Aerojet stock closed at $44.47, down 4.1%, after having tumbled to $43.50, the lowest intraday price since Lockheed announced the merger in December. Lockheed slipped 1% to $359.75.


Moves like the Aerojet acquisition are known as vertical deals because they combine companies in the same supply chain, rather than direct competitors. Such deals have traditionally been seen by antitrust officials as mostly benign and are often approved on the condition that the companies agree to restrictions aimed at keeping a market competitive, rather than selling a business.

The Trump administration in 2017 signaled a change in that approach when it sued to block AT&T Inc.’s takeover of Time Warner, a case the government ultimately lost.

Khan said in her letter that behavioral fixes are difficult to monitor and often fail to prevent the enlarged company from engaging in anticompetitive conduct. She said she’s considering whether the FTC should abandon the practice of relying on outside monitors to guard against violations of behavioral conditions.

“I am skeptical that behavioral remedies alone are sufficient to prevent a vertical merger from causing harm,” she said. “This is especially true for vertical mergers involving large firms with substantial market power at one or more levels of the supply chain. The larger the market share, the higher the risk that a vertical merger will result in a reduction of competition post-merger.”

Lockheed executives touted the benefits of their takeover to investors earlier this month, vowing to bolster Aerojet with an investment and an injection of its engineering know-how.

“We are eager to prove, and we’ve made commitments already to the customers that we will reduce their costs, we’ll speed up our development processes and timelines, and we’ll give them better products,” Lockheed Chief Executive Jim Taiclet said, “assuming we can achieve regulatory approval of the Aerojet Rocketdyne acquisition.”