Effort seeks OK for merger Lockheed Martin aims to vault Northrop deal over antitrust concerns

$11 billion purchase pending

Justice Department, Pentagon trying to maintain competition


March 18, 1998|By Greg Schneider | Greg Schneider,SUN STAFF Bloomberg News contributed to this report

Lockheed Martin Corp. has given skeptical government regulators a counterproposal for moving ahead with the $11 billion purchase of Northrop Grumman Corp.

The Pentagon and the Department of Justice had told the Bethesda-based company to respond by today to antitrust concerns about the pending deal, but Lockheed Martin filed a report on Monday, a company official said yesterday.

The report includes "a divestiture of operations and a consent decree designed to eliminate any of the perceived vertical integration concerns and foster competition," Lockheed Martin spokesman Charles Manor said.

Bloomberg News reported that sources said the Justice Department has already rejected the latest proposal, and that the submission didn't go far enough to meet the government's suggestion of selling all of Northrop Grumman's electronics businesses -- including the Electronic Sensors & Systems Division in Linthicum.

Justice Department officials could not be reached last night to comment on that report.

The company said only that "our discussions continue."

Investors continue to seem spooked by the lack of resolution, though analysts continue to believe the deal will go through in some form. Northrop shares fell $2.875 yesterday to $110. Lockheed Martin shares rose $1.75 to $116.375.

Lockheed Martin had planned to file its new proposals by April 8, but the government -- illustrating its hard line on the case -- pressed to have the report by today.

On March 6, the Justice and Defense departments informed the companies their combination would hurt competition in several areas, including airborne early warning radars, missile countermeasures and airborne fire control.

If no resolution is reached, the Justice Department likely will seek a preliminary injunction barring the companies from completing the merger. That would mark the first time federal antitrust authorities have sought to stop a recent major defense combination, having given the green light to numerous others during the last decade of consolidation.

In recent meetings, the Defense Department said it had considered three possible approaches to make the deal more palatable: having Lockheed Martin sell some specific Northrop Grumman electronics units with annual sales of about $400 million, sell all $4 billion or so of Northrop Grumman's electronics businesses, or face an antitrust suit seeking to block the transaction.

Sources said the government rejected the first option as not going far enough. The Defense Department is concerned that the purchase will make Lockheed Martin too vertically integrated, which means the company could be its own supplier on major contracts instead of working with subcontractors.

Manor, the company spokesman, said executives feel the new proposal will "address the horizontal and vertical objections raised by the government, provide for an economically viable transaction, ensure significant cost savings to the government and preserve a strong national security industrial base."

Manor would not comment further on the specifics of the proposal. Sources said recently that the company is intent on acquiring the bulk of the Northrop Grumman division in Linthicum, but that it has looked at carving off other, smaller electronics units.

In addition, Lockheed Martin is said to be considering parting with some of its own business units, including the Sanders electronics operation in Nashua, N.H. Sanders employs 4,700 workers and is currently the company's primary military electronics facility.

That the company would consider shedding Sanders illustrates how much it wants to acquire the ESSD facility in Linthicum.

Pub Date: 3/18/98

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