Antitrust Regulators Extend Review of Lockheed’s Proposed Purchase of Aerojet Rocketdyne

U.S. antitrust regulators have extended their inquiry of Lockheed Martin’s planned acquisition of Aerojet Rocketdyne requesting the companies provide additional information about the deal.

The customary 30-day antitrust review process was supposed to end at midnight Thursday, but will be extended 30 additional days from when the companies respond to the Federal Trade Commission request, Lockheed and Aerojet said in separate Friday morning statements. Lockheed said the “second request” from the Federal Trade Commission was expected.

“We are working cooperatively with the Federal Trade Commission as it conducts its review of the transaction and we continue to expect to complete the acquisition in the second half of 2021,” the company said in a statement.

Reuters reported Wednesday that regulators would likely extend the review period.

The announcement of the antitrust review extension comes two days after Raytheon Technologies said it would challenge the deal, arguing that the move would stifle competition in the solid rocket motor sector.

Raytheon CEO Greg Hayes said Wednesday that the company plans to make its feelings known to the Pentagon and Justice Department, which are reviewing the $4.4 billion deal.

“We obviously have some concerns about that [acquisition],” Hayes said during a virtual appearance at a Barclays investors conference. “They are a huge supplier to us and if that merger actually happens, you don't have an independent supplier in [the] solid rocket motor side. And it also, I think, gives us pause as we think about the competitive landscape going forward.”

The Biden administration’s decision to approve or deny the acquisition could set the tone for defense industry consolidation in the years to come. 

Lockheed argues the proposed acquisition will allow it to move faster on missile defense, hypersonic weapons, and space projects. 

Raytheon and Lockheed both build missiles for the U.S. military and American allies, and Aerojet Rocketdyne is a key supplier to both firms. Lockheed’s orders account for about 34 percent of Aerojet’s sales in 2020; Raytheon’s, 17 percent, according to the company’s latest regulatory filing.

Some industry executives fear Lockheed’s buying Aerojet would leave no independent U.S. maker of solid military rocket engines. In 2018, Northrop Grumman acquired Orbital ATK, the other solid rocket motor manufacturer.

“It will be only a matter of time before you have two vertically integrated missile providers for the United States of America,” one industry source said.

Lockheed sees it differently.

“We have every intention of continuing to be a merchant supplier across our industry,” Lockheed CFO Ken Possenriede said Wednesday afternoon at the same Barclays conference. “We're going to continue to play fair, and we're going to be a very effective supplier for all of our defense primes. And as a merchant supplier under Lockheed Martin's ownership our business plan, frankly, is to offer it to all customers and that was part of our valuation.”

Possenriede said Lockheed’s ownership of Aerojet will create efficiencies and synergies that will allow it to supply better rocket motors to its customers.

“We can invest more in Aerojet Rocketdyne capabilities than if they were a standalone company,” Possenriede said. “I'd also say Aerojet Rocketdyne is going to be a more reliable supplier as part of Lockheed Martin than it would be as an independent supplier.”

Regulators required Northrop to continue supplying its rivals with rocket motors after it bought Orbital ATK.  But Boeing executives said the acquisition gave Northrop the upper hand in an $85 billion contest to build new intercontinental ballistic missiles for the Air Force. Boeing dropped out of the contest, leaving Northrop as its only bidder.

Earlier this month, Deputy Defense Secretary Kathleen Hicks acknowledged during her Senate confirmation hearing that some consolidation in the defense industry “is probably inevitable... but extreme consolidation does create challenges for innovation.”

Gen. Charles Brown, Air Force chief of staff, said the military and defense companies need to embrace “non-traditional partners” as it builds the weapons of the future.

“As we decrease [the] numbers of defense contractors, there is some concern and we want to make sure they are all sustainable and survivable over time and we don’t…get down to one or two and then that’s all we have,” Brown said during a Wednesday afternoon Defense Writers Group meeting.