© Reuters. FILE PHOTO: An RAF Lockheed Martin F-35B fighter jet taxis along a runway after landing at the Royal International Air Tattoo in Fairford, Britain July 8, 2016. REUTERS / Peter Nicholls / FILE PHOTO
By Mike Stone
WASHINGTON (Reuters) – US Senator Elizabeth Warren has asked the Federal Trade Commission to look into arms industry mergers and is making a proposal from. in question Lockheed Martin (NYSE :), which would allow him to buy the largest independent rocket engine maker, Aerojet Rocketdyne Holdings (NYSE :).
The Democratic senator, who has a strong interest in corporate behavior, urged the FTC to investigate the premise and effectiveness of internal firewalls as proposed by Lockheed to prevent them from gaining a competitive advantage over their peers after the deal is closed, according to one July 16 letter seen from Reuters.
Lockheed Martin announced a $ 4.4 billion agreement to purchase Aerojet late last year, a deal that made waves as Lockheed – the # 1 defense company – obtained ownership of a vital part of the U.S. missile industry whose engines would be used in everything from the home missile shield to Stinger missiles.
Lockheed said that upon completion of the transaction, "the Aerojet Rocketdyne business will continue to serve as a commercial supplier to the entire defense industry," a premise that was skeptical of Raytheon Technologies (NYSE :), a major rocket engine customer.
The new company would require internal firewalls to protect competitors' intellectual property, pricing, and product advancement in the highly competitive arms business.
Warren's letter urged the FTC to take a stronger antitrust stance on defense deals and said the Lockheed link should not be allowed until the FTC understands the effectiveness of previous internal firewalls it is considered to be for maintaining competition and national security deemed necessary.
A firewall is an example of a behavioral remedy, one of the tools the FTC has to keep competition going. For this reason, Warren, in his letter to FTC chairman Lina Khan, asked whether "behavioral aids" had protected competition and prevented monopoly behavior in the defense industry.
Behavioral therapies usually expire after a few years.
A “structural remedy,” a more common enforcement mechanism, generally requires a company to sell a business to prevent monopoly behavior.
In February, the FTC expanded its review of the Hart-Scott-Rodino Act deal to look at potentially anti-competitive mergers.
Lockheed did not immediately respond to a request for comment. It has already announced that the deal will be closed by the end of this year.
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