Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, August 31, 1994 TAG: 9408310047
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: Associated Press
DATELINE: LENGTH: Medium
The $10 billion stock-swap merger announced Tuesday, one of the biggest defense mergers ever, would consolidate the second- and third-largest Pentagon contractors with a total $11.6 billion in contracts last year.
``There appear to be very serious antitrust questions'' said Deputy Defense Secretary John Deutch.
In the post-Cold War era, defense companies have reshaped themselves, either by selling off defense businesses to get smaller or by buying up other companies or pieces of companies at low prices. There have been nine major defense company mergers since August 1992.
``There's less competition,'' said Christine Evans-Klock, an economist at the National Commission for Economic Conversion and Disarmament, a private research group. ``The fewer companies are left, the better it is for those companies, but it's not necessarily better for the taxpayer.
``How sure can the Pentagon be, when a bid comes in at a price, that it's a fair price?''
Deutch, testifying at a congressional hearing last month, acknowledged that defense mergers bring big job layoffs and can mean the Pentagon can no longer solicit bids from competitors. The government already is ``sole-sourcing'' purchases of tanks, aircraft carriers and submarines, he said.
The Pentagon under the Clinton administration has encouraged mergers among defense contractors, to assure its continued access to military technology in an era of shrinking federal defense budgets. Pentagon officials have gone to bat for defense companies seeking to merge, taking their side in discussions with antitrust officials at the Justice Department, who generally must approve such combinations.
The Pentagon's fervent support for mergers is evident in its year-old policy, now under congressional scrutiny, under which it can give defense contractors millions of dollars to help them absorb the costs of merging. The administration argues that the policy can save taxpayers four to seven times what it costs because restructured companies can build the same weapons for less.
In March, for example, the Pentagon agreed to pay $60 million in restructuring costs when Martin Marietta bought General Dynamics' Space Systems Division.
But the Lockheed-Martin Marietta merger could be different.
``It's generally a good idea from the viewpoint of the U.S. taxpayer, but this is a big enough [merger] that the competitive aspects deserve careful study,'' Deutch said Tuesday. He noted that the main area in which they have overlapping interests is in their classified military space programs.
Defense Department spokesman Col. Doug Kennett said Pentagon officials will assess the merger proposal and will follow, along with the Justice Department and the Federal Trade Commission, ``clear procedures ... to determine if this particular merger is in the best interests of the government and the American taxpayer.''
Gina Talamona, spokeswoman for the Justice Department's antitrust division, said there was no decision yet on whether that division or the FTC, which share antitrust enforcement, would review the merger plan.
``Theoretically, the whole defense industry violates antitrust laws; it's a government industry,'' said Lawrence Korb, a former top Pentagon official now at the Brookings Institution think tank.
by CNB