FTC sues to block Lockheed Martin’s $4.4B deal to buy Aerojet Rocketdyne

The U.S. Federal Trade Commission (FTC) has filed suit to block the pending deal defense and aerospace giant Lockheed Martin has on the table to acquire Aerojet Rocketdyne. The proposed deal has a total value of $4.4 billion, made up of cash and debt, but the U.S. trade regulation agency argues that the combination of the two companies would provide Lockheed Martin with leverage it could use “to harm rival defense contractors and further consolidate multiple markets critical to national security and defense.”

Aerojet Rocketdyne supplies key systems, including rocket and missile engines, to a number of major defense contractors, and it’s one of very few with the expertise and scale to act as a subcontractor specifically in the area of propulsion system components aimed at missile and hypersonic cruise missile production (the other is Northrop Grumman). The FTC complaint also points out that Aerojet is “the only proven U.S. supplier” of control systems for another crucial area of defense: vehicles designed to intercept and kill enemy missiles.

Not only is the FTC concerned that Lockheed picking up Aerojet could reduce competition in the supply chain for crucial defense components, but it also raises the possibility that the supplier would have access to information that, following closure of the deal, Lockheed may have reason to make unfair use of.

Per the FTC’s release:

As a subcontractor, Aerojet also has had access to prime contractors’ sensitive information about technological advancements, cost, schedule, and business strategies. The complaint alleges that post-acquisition, Lockheed would have an incentive to exploit its access to its rivals’ proprietary information to gain an advantage in competitions against them.

While we’ve seen the current FTC demonstrate more appetite than the incarnation under the last administration to step in with large pending tech deals, this seems like a special case, which is more about the U.S. being concerned about a merger here negatively impacting its ability to build the most effective approach to defense possible.

Aerojet Rocketdyne is also a key supplier in the space industry, providing rocket engines for the ULA’s large launch vehicles, as well as NASA’s Space Launch System (SLS). Recently, they’ve faced more competition in that industry from Blue Origin, while other companies like SpaceX handle their own propulsion system design and supply.

Overall, this shouldn’t spark any concern among startups working in the space and worried it might dampen M&A activity; it’s an absurdly large deal for a company with a very specific role in the defense industry, and unlikely to have broader implications among smaller players.