By Jeffrey May, J.D.
President Trump says he’s a "little concerned" about the deal, recognizing a consolidation trend in the defense industry.
Defense contractors Raytheon Company and United Technologies Corp. announced their proposed merger on June 9. "The merger of Raytheon, a leading defense company, and United Technologies, a leading aerospace company, comprised of Collins Aerospace and Pratt & Whitney, will offer a complementary portfolio of platform-agnostic aerospace and defense technologies," the companies said. The transaction is expected to close in the first half of 2020 and is subject to regulatory approvals.
The path might not be so smooth. The combination of the defense contractors is already on the mind of President Donald Trump. As he spoke to CNBC this morning, the president said that he was a little concerned about the merger. While he spoke highly of the companies, Trump questioned the possible impact on competition if "it becomes one big fat beautiful company." He noted the demise of the many plane makers over the years and the difficulties for the federal government to negotiate defense contracts when there are only two players.
Mergers in the defense industry raise special concerns. As President Trump noted, there is generally a single buyer for products. The Department of Defense has unique requirements and projects can last for many years.
In 2016, the Department of Justice and FTC issued a joint statement, recognizing that the Department of Defense was in the best position to assess the impact of potential defense industry consolidation on that department’s ability to fulfill its mission in ensuring national security. As an example, last year, the FTC decided to conditionally approve aerospace and defense contractor Northrop Grumman Corporation’s proposed acquisition of solid rocket motor supplier Orbital ATK, Inc. with behavioral remedies as opposed to structural remedies. Approving the vertical transaction, the agency imposed non-discrimination requirements and a firewall to preserve competition. The FTC Bureau of Competition noted at the time that it typically disfavors behavioral remedies, but included them in that matter due to the special characteristics of the defense industry.
Raytheon’s proposed acquisition of United Technologies comes just eight months after the Department of Justice approved United Technologies’ acquisition of rival Rockwell Collins, Inc. In January, a federal district court approved a consent decree that required divestitures to resolve the Justice Department’s competition concerns.
Companies: Raytheon Co.; United Technologies Corp.; Northrop Grumman Corp.
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