Home Air Lockheed calls off Aerojet Rocketdyne buy over regulatory hurdles

Lockheed calls off Aerojet Rocketdyne buy over regulatory hurdles

Why the Lockheed Aerojet merger failed
Photo: Lockheed Martin

One of the US defense department’s largest defense contractors, Lockheed Martin, announced on Sunday it is terminating its agreement to acquire Aerojet Rocketdyne Holdings, under a deal that would have been worth $4.4 billion.

The decision to terminate the agreement follows the US Federal Trade Commission’s (FTC) lawsuit filed late last month seeking a preliminary injunction to block the acquisition.

FTC argued that the proposed vertical acquisition of Aerojet Rocketdyne, the last independent US supplier of missile propulsion systems, would allow Lockheed to use its control of Aerojet “to harm rival defense contractors and further consolidate multiple markets critical to national security and defense.”

The acquisition was first announced in December 2020, when the two companies expected it would close in the second half of 2021.

According to the FTC complaint, the proposed transaction could impact research and development as well as innovation into the future. As an independent supplier, Aerojet has the incentive to allocate its research and development funds based on the potential return the funds would generate regardless of which prime contractor it is supporting. The complaint alleges that post-acquisition, the combined firm would be incentivized to allocate Aerojet investment dollars for the combined firm’s benefit alone, which would stifle innovation.

Aerojet supplies advanced power, propulsion, and armament systems, which are critical components for the missiles made by Lockheed and other defense prime contractors.

“Our planned acquisition of Aerojet Rocketdyne would have benefitted the entire industry through greater efficiency, speed, and significant cost reductions for the US government,” said Lockheed Martin chairman, president and CEO James Taiclet. “However, we determined that in light of the FTC’s actions, terminating the transaction is in the best interest of our stakeholders.”

“Moving forward, we will maintain our focus on the most effective use of capital with the highest return on investment, including our ongoing commitment to return value to shareholders. We remain confident in our company’s strong foundation and growth potential as several exciting projects enter production.”