Justice raises price of merging Lockheed says requested divestitures are 'unprecedented'



WASHINGTON -- Lockheed Martin Corp. said yesterday that the government has asked it to agree to "unprecedented divestitures" or face a court battle over its planned $11 billion merger with aerospace rival Northrop Grumman.

The two companies have been given until Monday morning to offer a plan that meets government demands.

Lockheed said the Justice Department, the government's lead antitrust regulator, and the Pentagon, which has said it is opposed to allowing the two defense titans to merge unchecked, informed the company that they would both participate in the suit.

Lockheed said it planned to continue negotiating with Justice Department representatives through the weekend if necessary.

But the company warned that it is "prepared to litigate" if talks break down completely.

At her weekly press briefing yesterday, Attorney General Janet Reno acknowledged that Justice is prepared to sue the PTC companies to block the merger.

Reno said the caution from Justice to the two companies was an effort to give them "extra time."

"We have given everybody concerned some more time to try to address the issues," she said. "And I expect that this will happen within the next several days."

Lockheed Martin offered earlier this week to divest portions of Northrop Grumman defense electronics business that are valued as much as $1 billion, but Justice said the offer did not go far enough.

Justice officials say they believe that Lockheed would hold a dominant position in defense electronics after the deal, one so large that they fear price manipulation could occur, something that could drive up the cost of everything from radar systems to jet fighters at the Pentagon.

Justice also fears that Lockheed would give business for electronic components on its fighter planes to in-house units, rather than seek bids for procurement of those components among industry suppliers.

Lockheed has countered that cost efficiencies from the sale should save the Pentagon as much as $1 billion a year.

And the companies have offered to sign a consent decree that guarantees that they will ask for bids for component work on the open market.

The threat from Justice, observers say, implies that negotiations are at a stalemate.

Defense Secretary William Cohen had said Wednesday that the two sides would be negotiating for the next week.

"I was aware that a counteroffer was made [Tuesday], that is not fully acceptable, and that they are going back to the drawing board for the next week and to see what can be resolved," Cohen said. "But it's under intensive negotiation, and no one can predict whether it will be resolved or not."

Antitrust experts said that, despite the spate of defense industry mergers in recent years, consolidating companies should have expected that the government would put a halt to acquisitions soon if it sensed that competition was about to be affected.

Pub Date: 3/20/98

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