Concerned about over consolidation of the defense industrial base (DIB), a pair of Democratic House and Senate members last week asked the Defense Department a series of questions about the health of the DIB, long-term reviews it does of mergers and acquisitions, and whether it sought assurances from L3Harris Technologies [LHX] that its acquisition of Aerojet Rocketdyne would benefit the industrial base.
Rep. John Garamendi (Calif.) and Sen. Elizabeth Warren (Mass.) wrote in their Feb. 23 letter to Defense Secretary Lloyd Austin of their “ongoing concerns with the U.S. Department of Defense’s…insufficient review of consolidation in the defense industrial base and the resulting impacts on innovation, supply chains, and national security.”
Warren opposed Lockheed Martin’s [LMT] earlier attempt to acquire Aerojet, a deal that was thwarted by the Federal Trade Commission over anti-competitive concerns. Subsequently, L3Harris acquired Aerojet. While the deal was scrutinized by the government, ultimately it was approved without conditions. Warren also opposed the L3Harris deal.
Garamendi and Warren said that last November they were briefed by DoD after the L3Harris purchase and confirmed that the department did not impose conditions on the deal. They said DoD could have received assurances that L3Harris would continue to act as a merchant supplier of solid rocket motors just as Aerojet was.
The Lockheed Martin purchase of Aerojet would have been a case of vertical integration given that Lockheed Martin makes missiles that uses SRMs. The L3Harris deal for Aerojet was a case of horizontal integration, as the company does not manufacture missiles and just added SRMs as a new product line separate from its other offerings.
Among the questions Garamendi and Warren want answered are DoD’s assessment of the health of the DIB. Whether the department will track the impacts of defense acquisitions over time. Any assurances the department received from L3Harris related to its purchase of Aerojet, and if none, why not? What benefits the DIB will get from the L3Harris-Aerojet deal and how it will make sure those benefits ripen? What information does DoD publicly release about its reviews of defense mergers? And based on a new congressional mandate requiring defense companies to submit the same merger related information to DoD as they do to the Justice Department and FTC, what is DoD doing to ensure it receives these disclosures?
“With rampant consolidation that affects supply chains, prices, and security, DoD must conduct more thorough and transparent assessments of M&A in the defense space,” the Hill members say.