After Blocking Lockheed Martin Acquisition, FTC Allows Another Defense Firm to Close the Deal

After the Federal Trade Commission blocked top defense contractor Lockheed Martin from acquiring a major rocket propulsion firm last year over monopoly concerns, the agency quietly allowed another defense firm that employs a former senior Pentagon official to secure the deal.

Following months of scrutiny, the FTC gave final regulatory approval in July for L3Harris, one of the largest defense contractors in the country, to acquire Aerojet Rocketdyne for $4.7 billion. L3Harris had announced that it would buy Aerojet Rocketdyne months after the FTC rejected Lockheed Martin's bid in February 2022.

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The FTC has repeatedly heralded the Lockheed Martin block as one of its major successes following the confirmation of reformist chair Lina Khan, who has reinvigorated the agency's enforcement of antitrust laws. In a testimony to the Senate Judiciary Committee last September, Khan called Lockheed Martin's abandoned attempt a defense merger that would have eliminated the country's only remaining independent supplier of key missile propulsion inputs."

The Department of Defense, which has substantial influence over antitrust enforcement against defense contractors, also appeared to oppose the merger. In a report published the same month that Lockheed Martin's bid fell through, the department stated that consolidation in the rocket motors sector had negatively impacted the stability of U.S. military industrial assets, which academics and industry experts refer to as the defense industrial base.

While nominally the FTC might be the decision-maker here, to a significant extent, the DOD is the decision-maker."

The FTC and Defense Department's apparent about-face set off alarms among lawmakers and aides on the Senate Armed Services Committee. Multiple sources close to the committee, who asked for anonymity to speak freely about the L3Harris-Aerojet Rocketdyne deal, say lawmakers had hoped the FTC would object to the merger after the agency formally requested both companies to provide more information on the impact the merger would have on the market.

Aerojet Rocketdyne was one of only two domestic suppliers of solid rocket motors. The other supplier, formerly known as Orbital ATK, was acquired by Northrop Grumman in 2018 and has since been absorbed into the defense giant's other holdings.

Two staffers told The Intercept that the Defense Department likely invoked the depletion of U.S. missile stockpiles in Ukraine's fight against Russia, with the thinking being that the merger could potentially increase Aerojet Rocketdyne's production or fortify its operations. While Khan is no stranger to controversial decisions - an FTC lawsuit against Amazon and its sprawling e-commerce monopoly is reportedly due any day now - those staffers suggested that a move that would put her at odds with the Defense Department and the Biden administration's fervent support for Ukraine may have been a bridge too far. The FTC declined to answer questions for this story.

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It's hard for an agency that is focused on anti-monopoly law to act like they have more understanding of defense acquisitions than the Defense Department," said Jeff Hauser, the executive director of the Revolving Door Project and a former antitrust official in the Department of Justice. So while nominally the FTC might be the decision-maker here, to a significant extent, the DOD is the decision-maker."

Congressional staffers told The Intercept that the deal's quiet approval suggests the Defense Department is indifferent to the Biden administration's antitrust agenda and is further evidence that the Pentagon is too cozy with its contractors.

Staffers also pointed to a revolving door between L3Harris and the Pentagon that may have colored the outcome of the deal. L3Harris hired former Defense Department official Kim Herrington in July 2021, a few weeks after Khan was confirmed as FTC head and after it became clear that Lockheed Martin's bid for Aerojet Rocketdyne would face significant regulatory hurdles. In his role at the Pentagon, Herrington monitored the resiliency of the U.S. defense industrial base and managed relationships with contractors, making him uniquely suited to argue in favor of the acquisition.

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This is the endemic problem of corruption," one staffer close to the Senate Armed Services Committee told The Intercept. That you have these former DOD officials using relationships they build in the department to advance the interests of private companies in ways that might jeopardize national security."

Defense Department spokesperson Jeff Jurgensen confirmed that the department was consulted on the acquisition, but that the FTC and DOJ maintain decision-making authority to clear, remedy, or sue to block transactions."

Herrington joined L3Harris after three years at the Pentagon, where he worked as acting deputy assistant secretary of defense for industrial policy. L3Harris hired Herrington in 2021 as vice president of government finance, a role in which he works directly on defense contracts. Herrington is not unfamiliar with the inner workings of the defense industry: Before his tenure at the Pentagon, he worked at several other defense and technology firms, including at Lockheed Martin for 20 years.

While the extent of Herrington's role in securing regulatory approval for the L3Harris-Aerojet Rocketdyne deal is unclear, Hauser said the timing of his hire should raise concerns about the Defense Department's conduct.

Having somebody who's a former colleague who you trust on the other side of the table is definitely a way to make the claims of the acquiring company seem credible," he told The Intercept. You're never going to be able to prove causality from the outside, but it definitely makes it more likely to get a favorable outcome."

L3Harris declined to comment on Herrington's involvement in the deal. Lockheed Martin did not respond to a request for comment.

Prior to President Joe Biden's inauguration, the defense industry experienced a decadeslong string of mergers and acquisitions that drastically reduced competition to a handful of major conglomerates. L3Harris, Aerojet Rocketdyne, and Lockheed Martin are all the result of consolidations across the defense sector.

The defense industry experienced a decadeslong string of mergers and acquisitions that drastically reduced competition to a handful of major conglomerates.

L3Harris was formed from a 2019 merger between L3 Technologies and Harris Corporation, creating the sixth-largest defense contracting firm at the time. L3 Technologies had been a business partnership led by former powerhouse global investment firm Lehman Brothers, created to buy up subsidiaries of Lockheed Company and Martin Marietta when those firms merged in 1995 to become Lockheed Martin.

In 2013, GenCorp, which owned rocket propulsion firm Aerojet, merged with Pratt & Whitney Rocketdyne, another rocket propulsion firm, to form Aerojet Rocketdyne. At the time, the FTC lamented that the merger would give the new company a monopoly in the market for a type of advanced missile defense interceptor propulsion system," but the agency did not challenge it primarily because the Department of Defense wishes to see the transaction go forward for national security reasons."

The Pentagon's maneuvers to win approval for the latest controversial merger makes transparency about its decision-making all the more crucial, Senate sources said. They said questions from lawmakers about the Defense Department's role in the L3Harris deal have gone largely unanswered.

The lack of transparency part of this - where the DOD does the analysis and doesn't even have to justify any of it to the public - is a huge concern," one Senate aide told The Intercept. There has to be an opportunity to have other experts be able to weigh in on their analysis of how it's going to impact the market and, in this case, our national security and the entire defense industrial base."

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