Lockheed Martin’s chalet at Singapore Airshow 2014. (Lockheed Martin)
WASHINGTON: If Lockheed Martin ends up abandoning its proposed $4.4 billion buy of Aerojet Rocketdyne, the company could look elsewhere for merger and acquisition opportunities, its chief executive said today.
On Jan. 25, the Federal Trade Commission filed suit against Lockheed in an effort to block the company’s planned acquisition of Aerojet — a purchase the FTC said would allow Lockheed to undercut its competitors in the missile market.
In comments at the Cowen annual Aerospace/Defense & Industrials Conference, Lockheed CEO Jim Taiclet didn’t address whether the company will fight the lawsuit or walk away from the deal. (Lockheed has 30 days from the date the suit was filed to make a decision.) However, he made clear that the FTC’s suit will not deter the company from further M&A activity.
If the Aerojet acquisition “doesn’t come to fruition, we’ll look at our available capital and we’ll apply it to the next highest best use,” Taiclet said.
“There may or may not be inorganic growth opportunities in the immediate term, meaning mergers and acquisitions,” he said, adding that Lockheed would look for companies on a “smaller scale” than Aerojet that would not trigger the same concerns about vertical integration.
John Mollard, Lockheed’s treasurer, said that the company is currently creating internal “capability roadmaps” that sketch out how it can gradually grow its current weapons portfolio to include the new, cutting edge technologies the Defense Department has said it needs.
“As part of that exercise, we may well identify gaps that we can’t fill internally, and there may be an inorganic, M&A acquisition if it comes to light,” he said.
Defense analysts told Breaking Defense last week that, given the FTC’s unanimous vote to block the Aerojet deal and the Pentagon’s silence on the issue, Lockheed is likely to withdraw from the deal rather than pursue legal action. The situation has been further complicated by an internal power struggle among Aerojet leadership, with the company’s executive chairman Warren Lichtenstein hoping to replace key board members, including Aerojet CEO Eileen Drake, at an upcoming shareholder’s meeting.
During the Cowen event, Taiclet acknowledged that Lockheed will still continue to have access to Aerojet’s technologies even if it does not go through with the acquisition. However, he also made the case that clearing Lockheed to buy Aerojet would allow for faster, more efficient integration of the propulsion systems that Aerojet makes into the missiles, hypersonic weapons and space systems developed by Lockheed.
That, in turn, would lead to reduced costs for taxpayers, said Taiclet, who estimated that a unified Lockheed-Aerojet would be able to reduce government costs by about $100 million per year, based solely on the reduction of “fee on fee” costs that occur when the government must pay fees to a subcontractor as well as a prime.
“We thought there were really important mission and, ultimately, customer benefits to the transaction,” he said. “The FTC is seeing in a different way.”
