THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, August 31, 1994 TAG: 9408310437
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY JOHN HOLUSHA, THE NEW YORK TIMES
LENGTH: Long : 106 lines
In one sweeping stroke, two leading military contractors, Lockheed Corp. and Martin Marietta Corp., have reordered the landscape of their industry by proposing a $10 billion merger - the largest ever in their industry - that signals that survival in the military industry will require the power of a behemoth.
The proposed merger, announced Tuesday just after midnight, continues a steady drumbeat of takeovers, combinations and mergers in the industry that has only grown louder as the Pentagon's budget has declined.
Senior officials of the Justice and Defense Departments were cautious in their assessment of the deal and said it would be closely scrutinized for possible antitrust problems.
At a joint news conference Tuesday in New York, the heads of both companies, widely regarded as shrewd survivors in their industry, said they felt pressure from the Defense Department to either become more efficient or to disappear.
``These are Darwinian times in our industry,'' said Norman R. Augustine, the chairman of Martin Marietta. ``We need three full factories rather than six that are half full.''
Pentagon officials had made it clear that they expected that the number of individual contractors would decline, with the survivors being conglomerations of smaller companies, he said.
``They said they have five companies supplying tactical
aircraft, but they can only afford two,'' Augustine said, suggesting that the sheer size of the new Lockheed Martin would be a distinct competitive advantage.
The transaction, to be completed early next year, would create the largest company whose principal business is as a military supplier; 60 percent of revenues would be derived from the government.
Augustine and Daniel M. Tellep, the chairman and chief executive of Lockheed who will be chairman of the new company, said their goal was to be globally competitive in the advanced military aircraft, electronics and rockets that are their specialties. They showed no interest in converting to production of civilian products.
Antitrust concerns: ``There are certain to be very serious antitrust questions about this merger,'' said Deputy Defense Secretary John M. Deutch, who added that he thought the merger ``was generally a good idea for the U.S. taxpayer.''
At $23 billion in revenues, Lockheed Martin would be the 15th-largest U.S. industrial company based on 1993 rankings - about the size of Pepsico, a bit smaller than Boeing.
Based on overall revenues last year, Boeing Co. and United Technologies Corp. would be comparable in size to Lockheed Martin. But with their sizable sales to the airline, auto and manufacturing industries, they rely far less on the Pentagon.
The military industry, faced with drastically reduced Pentagon spending, has seen a series of mergers and takeovers, most recently the hostile takeover of Grumman Corp. of Bethpage, N.Y., by Northrop Corp. of Los Angeles earlier this year.
Grumman had originally planned to sell itself to Martin Marietta, but Northrop intervened with a higher bid that drove Martin Marietta away. As the deal to buy Grumman started to crumble, merger talks between Lockheed and Martin Marietta began.
The consolidation in the industry is not likely to end: Lockheed and Martin Marietta were among the industry's most aggressive, and the combined entity is likely to have billions of dollars to acquire other companies.
Top executives of the two said they expected to save money by eliminating duplication. The new company will have its headquarters in Bethesda, Md., where Martin Marietta is based; that will eliminate the need for a headquarters staff at Lockheed's base in Calabasas, Calif. Savings are expected in other areas, though the executives declined to say how many of the 170,000 jobs on payroll would be eliminated. ILLUSTRATION: LOCAL CONTRACTS
LOCKHEED
Lockheed has an office in Hampton, at 1919 Commerce Drive, that
handled at least $33 million in contracts for NASA Langley Research
Center in fiscal 1993. That included six contracts for professonal
services and engineering, according to the Federal Procurement Data
Center.
Lockheed's branch in Fort Worth, Texas, was awarded two other local
contracts in fiscal 1993 - a total of $453,000. Both are research
and development to be performed in Hampton for the U.S. Army Corps
of Engineers.
MARTIN MARIETTA
Operating out of its Cherry Hill, N.J. office, it is handling at
least one federal contract in Hampton Roads: a $65,000 job for the
Navy in Virginia Beach.
AP color graphic
The merger plan: Lockheed and Martin Marietta
The New Entity
U.S. Employment
The Deal at a glance
Profiles and Products
For copy of graphic, see microfilm.
KEYWORDS: MERGER by CNB