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Lockheed drops deal for rocket engine maker after US legal challenge

Lockheed Martin has dropped its $4.4bn bid to buy the rocket engine maker Aerojet Rocketdyne after the US Federal Trade Commission sued to block the deal, claiming it would reduce competition and raise prices in the defence sector.

The collapse of the takeover is the second significant victory for the FTC in a week after SoftBank abandoned its proposed $66bn sale of UK-based chip business Arm to Nvidia in the face of resistance from the agency and other national competition regulators.

Lina Khan, FTC chair, has vowed to oversee much tougher enforcement of US competition rules as part of an effort by Joe Biden’s administration to tackle concentrations of corporate power across the economy.

Based outside Washington, Lockheed is the world’s biggest defence contractor. The company had announced its agreement to acquire Aerojet in December, saying it would “preserve and strengthen an essential component of the domestic defence industrial base and reduce costs for our customers and the American taxpayer”.

The plan quickly ran into resistance in Washington, however. Elizabeth Warren, Democratic Senator from Massachusetts, wrote to the FTC in objection to the deal, warning that “waves of merger activity and consolidation [have] transformed the nation’s defence industry from a competitive market with over 50 firms to an oligopoly of only five large rivals”.

The FTC sued to block the deal last month, calling it the agency’s first litigated challenge to a defence merger in decades. It said the US defence department had also reviewed the potential acquisition and considered its impact.

Holly Vedova, director of the commission’s competition bureau, said at the time: “Lockheed is one of a few missile middlemen the US military relies on to supply vital weapons that keep our country safe . . . Without competitive pressure, Lockheed can jack up the price the US government has to pay, while delivering lower quality and less innovation.”

The decision to abandon the takeover deals a blow to Lockheed’s development of hypersonic weapons, a priority for the US government given China’s sudden breakthrough in the technology.

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

Aerojet said in a statement that it was “confident” about its future performance and would give further details on its strategy when it reports its earnings on Thursday.

Lockheed already uses Aerojet’s propulsion systems in many of its products. But it had hoped to bring its 15 manufacturing sites and 5,000 employees in-house as part of the deal.

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