Inside the alleged ‘boardroom coup’ at Aerojet Rocketdyne

WASHINGTON: Tensions between Aerojet Rocketdyne’s leadership have now escalated into a full-blown legal battle over the future of the company, with its chief executive and her allies on the board seeking to unseat the firm’s executive chairman as a countermove to what they describe as a “boardroom coup.”

The battle lines have been drawn between Aerojet CEO Eileen Drake and its executive chairman Warren Lichtenstein, whose Steel Partners Holdings LP owns 4.9% of the company. Both have three allies on the eight-person board of directors, leaving it in deadlock, and have filed lawsuits against the competing faction.

At stake is the future of Aerojet Rocketdyne — a company the government has deemed essential to America’s defense industrial base due to its status as the only remaining independent solid rocket motor manufacturer and, in some cases, the sole supplier for key components for missiles, rockets and hypersonic weapons. This story is based on legal fillings viewed by Breaking Defense.

During a hearing today, a judge from Delaware Chancery Court stated her intention to approve a Feb. 7 request from Lichtenstein for a temporary restraining order against Drake and her cohort — Kevin Chilton, Thomas Corcoran and Lance Lord — effectively barring them from being able to speak on behalf of Aerojet or use its resources in an upcoming board election, which will decide the direction of the company.

“Half of an evenly divided board may not speak on behalf of the Company or use its resources to discredit the other half in an election contest,” Lichtenstein’s complaint states. “None of the directors should be tapping the corporate treasury in an effort to tilt the stockholder vote in their favor.”

Drake and the three other board members filled a countersuit on Feb. 11 arguing that Lichtenstein and his collaborators — James Henderson, Audrey McNiff, and Martin Turchin — have mounted a “boardroom coup” that seeks to oust Drake and lock in Lichtenstein’s place on the board despite an ongoing internal investigation.

The complaint alleges that Lichtenstein and his allies violated their fiduciary duties by launching a proxy contest while Aerojet’s now-defunct merger with Lockheed Martin was pending and circumventing company governance procedures.

Ultimately, Drake seeks a court order to remove Lichtenstein from his position as a director of Aerojet and the appointment of a “special committee” of Chilton, Lord and Corcoran, her three supporters, to break the deadlock on the board and manage the company’s response to the proxy contest.

A spokesperson for Aerojet Rocketdyne did not immediately respond to a request for comment. A spokeswoman for Steel Partners declined to comment.

Relationships ‘Strained’

Aerojet’s internal power struggle became public after the Federal Trade Commission filed suit to block Lockheed’s proposed $4.4 billion acquisition of Aerojet on Jan. 25, a move that resulted in Lockheed terminating the deal on Sunday.

However, both complaints make clear that the potential merger with Lockheed was a longstanding source of tension between Drake and Lichtenstein, starting back when the deal was being brokered in 2020.

“During the negotiations with Lockheed, Mr. Lichtenstein pressed Ms. Drake and her management team to shop the possible deal and negotiate for other target-friendly terms,” Lichtenstein’s complaint reads.

However, Drake refused and allegedly threatened to leave the company and take the management team with her unless Lichtenstein relented. “Ultimately, the Company and Lockheed executed a Merger Agreement, but the relationship between Mr. Lichtenstein and Ms. Drake had become strained,” Lichtenstein’s complaint alleges.

Drake’s complaint contends that Lichtenstein fought against the merger without presenting a “viable alternative” and that, after the deal was announced in December 2020, he potentially violated the merger agreement numerous times by telling unnamed industry figures that he opposed the deal and would seek to oust Drake and take over the company as CEO if Lockheed failed to take over.

“When Mr. Lichtenstein failed to follow the Board’s directive to cease and desist from unauthorized communications regarding the merger, his conduct was reported to the full Board. In response, the six non-executive directors on the Board unanimously authorized an independent investigation led by an outside law firm,” Drake’s complaint said.

“Rather than permit the independent investigation to proceed to conclusion, Mr. Lichtenstein has attempted to guarantee his renomination to Aerojet’s Board and thereby evade any consequences of the investigation.”

On Jan. 28,  just three days after the FTC announced its suit, Lichtenstein’s Steel Partners proposed a new slate of directors that excluded Drake, Lord, Chilton and Corcoran — a move Lichtenstein claimed would better position Aerojet as a standalone company if the merger fell through.

Aerojet responded by publishing a press release that revealed that Lichtenstein was the subject of an internal investigation and accused him of taking steps to secure his board position.

Since then, the Aerojet board has attempted to meet several times, most recently on Feb. 4. Drake’s faction proposed a set of resolutions that would put Lord, Chilton and Corcoran in charge of managing the company’s response to the proxy fight, and Lichtenstein’s faction offered its own resolutions that would force the board to remain neutral.

Neither set of proposals were able to garner a majority of the vote, and the two factions filed suit the following week.

What’s Next? 

Sources who spoke to Breaking Defense earlier this month said that Aerojet’s power struggle would likely be decided by the company’s annual shareholders meeting, which typically takes place in May. However, a date has not been set for this year’s meeting, and it’s unclear whether the board will be able to muster a majority vote to set a date.

Another lingering question is whether Aerojet will seek out another buyer in the wake of Lockheed’s withdrawal, and what kind of a company could successfully acquire Aerojet, as the Biden administration has indicated it will empower antitrust regulators to more harshly scrutinize M&A activities in the defense sector.

Today the Defense Department released a report on the state of competition in the defense industrial base, which warned of “substantial” consolidation at the highest levels. The current state of play makes “careful attention by DoD in the review of any further mergers necessary,” the White House noted in a statement, adding that the Pentagon will be expected to support FTC and Department of Justice recommendations when a merger threatens national security interests.

However, analysts told Breaking Defense that there are likely buyers who won’t trigger the same vertical integration considerations as Lockheed Martin.

Byron Callan, an aerospace and defense analyst at Capital Alpha Partners, said in January that a defense technology company like Leidos or L3Harris could potentially acquire Aerojet without being flagged by antitrust organizations. Loren Thompson, a defense consultant who has worked with Aerojet, previously pointed to private equity as another possible buyer.