U.S. Regulators Vow to Preserve Competition Among Defense Contractors

13 April 2016

The two U.S. agencies that enforce antitrust law said on Tuesday they were committed to preserving competition among weapons makers and noted that some sectors already had too few competitors.

The Justice Department and Federal Trade Commission, which are facing a wave of mergers, said in a joint statement it was important to retain a sufficient number of competitors to supply the military in order to restrain price increases and ensure companies continue to innovate.

"In light of recent speculation about possible future consolidation, we thought it timely to reinforce that message," said Bill Baer, head of the department's Antitrust Division who is slated to become the department's associate attorney general.

Analysts said the statement was a response to Pentagon concerns about consolidation among its contractors.

Jeffrey Bialos, a partner with Sutherland Asbill & Brennan LLP, said the statement was aimed at the Pentagon and defense industry.

"The joint statement does put the defense industry on notice that the antitrust agencies will continue to be vigilant in preserving competition in defense markets," he said in an email.

Defense Undersecretary Frank Kendall, who oversees weapons acquisitions, and Defense Secretary Ash Carter have raised concerns about mergers among big suppliers after the Justice Department approved in September Lockheed Martin Corp's $9 billion acquisition of Sikorsky, bringing the Pentagon's biggest fighter jet maker together with one of its largest helicopter makers.

One big merger that would affect the Defense Department, United Technologies' proposed tie-up with rival aerospace supplier Honeywell International Inc, was scrapped in February because of antitrust concerns.

In the joint statement, the agencies said they would block a merger that appeared anticompetitive.

"Many sectors of the defense industry are already highly concentrated. Others appear to be on a similar trajectory," the agencies said.

Defense Department spokesman Mark Wright said the Pentagon welcomed the joint statement, and said it would no longer push a legislative proposal that would have allowed regulators to stop mergers for national security reasons.

"The department is withdrawing the legislative proposal," Wright said in an email.

The Pentagon's Kendall had pushed for the proposal but it quickly ran into trouble, according to U.S. officials. Officials at the FTC and Justice Department had argued against creating new legislation, saying that current law was broad enough to address the Pentagon's concerns.

PwC said in February that 2015 was a record year for mergers and acquisitions in the aerospace and defense industry, with deals valued at $61.7 billion.


Source : reuters.com