May 26, 2022

Volume XII, Number 146

Advertisement
Advertisement

May 25, 2022

Subscribe to Latest Legal News and Analysis

May 24, 2022

Subscribe to Latest Legal News and Analysis

May 23, 2022

Subscribe to Latest Legal News and Analysis

FTC Sues to Block Lockheed’s Proposed Acquisition of Aerojet Rocketdyne in Milestone Defense Industry Vertical Challenge

The Federal Trade Commission (“FTC”) filed suit yesterday to block Lockheed Martin Corporation’s proposed $4.4 billion acquisition of Aerojet Rocketdyne Holdings Inc., announced back in December 2020. Aerojet, the last independent U.S. supplier of critical inputs for missile systems, hypersonic cruise missiles, and missile defense kill vehicles, has only one other competitor—Northrop Grumman—that competes to provide propulsion inputs for missile systems and hypersonic cruise missiles to defense prime contractors. The complaint alleged that the proposed vertical acquisition would give Lockheed “the ability and incentive to deny, limit, or otherwise disadvantage competitors’ access to critical propulsion inputs for various weapons systems,” according to the FTC press release. The FTC voted 4–0 across party lines to authorize the complaint (a copy of which is not yet available) and to seek a preliminary injunction to halt the deal pending the administrative trial.

The Department of Defense (“DoD”) reviewed the acquisition in collaboration with the FTC, considering the potential impacts of the transaction on national security, the nation’s industrial and technological base, competition, and innovation. If the deal is allowed to proceed, the complaint alleges that Lockheed will use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense. The complaint alleges that the acquisitions will give Lockheed the ability to cut off other defense contractors from the critical components they need to build competing missiles. In addition, this advantage would allow Lockheed to raise the price of its services, including to the U.S. government, and affect the schedule and contract terms for developing and supplying the product while delivering “lower quality and less innovation,” according to FTC Bureau of Competition Director Holly Vedova. The impact to innovation is also noted in the fact that, as an independent supplier, Aerojet has the incentive to allocate its research and development funds based on the potential return the funds would generate regardless of which prime contractor it supports, which would change if acquired by Lockheed. There is also the concern that, as a subcontractor, Aerojet has access to sensitive information around prime contractors’ technological advancements, cost, schedule, and business strategies. The complaint alleges that post-acquisition, Lockheed would have an incentive to exploit the access to its rivals’ proprietary information to gain an advantage in competition against them.

Lockheed and Aerojet both released statements on January 25 indicating that the traditional merchant supply and firewall behavioral relief proposed by Lockheed—which may have been sufficient in the past to address anticompetitive concerns with vertical mergers—were rejected as insufficient by the current Administration. Lockheed has 30 days to determine whether it will respond to the suit or terminate the deal. On its January 25 fourth quarter earnings call, Lockheed CEO Jim Taiclet indicated that Lockheed was aware of the impending challenge and said the company will review the lawsuit and “evaluate all of our options.”

FTC Chair Lina Khan has made clear her aggressive enforcement agenda for the FTC, pledging that the FTC will use the “full set of tools and authorities” in its arsenal, as well as her skepticism of antitrust’s traditional presumption that vertical mergers pose less of a concern than horizontal transactions because they may have procompetitive benefits. As we wrote about in September, the FTC in a contentious 3–2 vote along party lines withdrew its support from the Vertical Merger Guidelines, which the majority believes are flawed, particularly its provisions related to the “purported procompetitive benefits (i.e., efficiencies) of vertical mergers.” Chair Khan is now putting her money where her mouth is. The challenge to Lockheed’s acquisition of Aerojet is the second major merger challenge brought by the FTC under her leadership, the first being the FTC’s December 2021 challenge to Nvidia’s $40 billion acquisition of Arm Ltd. Both deals are vertical mergers, which until now have not often been challenged, and both challenges are notable for the FTC’s (until now less common) use of its in-house administrative process under Part 3 of the FTC Act. Also of note is that the complaints against both transactions were authorized by a unanimous 4–0 vote of the Commission, so, despite ideological differences along party lines, Chair Khan has been able to bring the two Republican commissioners around to her way of thinking—or perhaps the two mergers are so problematic that they would have been challenged even under the prior Administration.

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 26
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Joel Mitnick, Cadwalader Law Firm, New York, Finance and Litigation Law Attorney
Partner

Joel Mitnick is a partner in the Antitrust and Global Litigation groups. Joel’s practice focuses on antitrust matters on behalf of a wide array of financial market, life science, media, service industry and industrial clients. Joel represents clients in Federal and State antitrust investigations, antitrust class actions and merger clearance proceedings. He has tried merger cases to verdict and briefed antitrust class actions up to the United States Supreme Court. Joel also counsels some of the nation’s most prominent activist and passive hedge funds and private equity...

212-504-6555
Ngoc Pham Hulbig, Cadwalader, coordinated competition filing attorney, high stakes transactions lawyer
Counsel

Ngoc Pham Hulbig's practice focuses on counseling regarding U.S. and global premerger notification requirements. She has extensive experience in preparing filings under the Hart-Scott-Rodino Act and has coordinated competition filings around the world for complex and high-stakes transactions. She also counsels clients in the full range of antitrust matters, including mergers and acquisitions, joint ventures, and in connection with investigations by the U.S. Department of Justice and the U.S. Federal Trade Commission. Ngoc has experience representing clients in matters...

704-348-5282
Eden Sung Global Litigation Attorney Cadwalader Washington, DC
Associate

Eden Sung is an associate in Cadwalader’s Antitrust and Global Litigation groups, where she focuses her practice on antitrust and appellate litigation. Eden counsels clients in a variety of complex commercial disputes, and has experience advising clients in U.S. Department of Justice investigations, audits and HSR filings. She also has helped clients navigate various state franchise laws in commercial, antitrust and class action matters.

Eden received her J.D. from Washington University in St. Louis School of Law, Order of the Barristers, where she was an Ethan A. H. Shepley Scholar...

202-862-2338
Advertisement
Advertisement
Advertisement