Deputy Secretary of Defense John M. Deutch today announced that the Department
of Defense supports the proposed merger between Lockheed Corporation and Martin
Marietta.
In a letter to the Federal Trade Commission, Deutch noted, "Consolidation among
defense suppliers is both inevitable and necessary.... The Department supports
the merger of the Lockheed and Martin Marietta corporations.
It represents a
step toward a stronger, robust industry that will result in savings for the U.
S. government."
The Department of Defense reached its decision of support after a comprehensive
review of the transaction and its effect on defense programs.
The Department
found that the merger would lead to substantial cost savings and cost avoidance
for DoD and the U. S. taxpayer.
The DoD study also revealed that the merger
would not create excessive market concentration, and that there would remain an
ample range of suppliers to compete for defense purchases.
This was the first
review of this magnitude that has been conducted by the Department.
The Department's study reflects the priority it places on efforts to
restructure the defense industry.
It further reflects DoD's position to
conduct active reviews of other potential mergers.
During its review, DoD
staff worked closely with the FTC staff.
In his letter, Deutch praised the
cooperation between the two agencies.
A copy of Deputy Secretary Deutch's letter is attached.
Honorable Janet D. Steiger
29 DEC 1994
Chairman, Federal Trade Commission
6th Street & Pennsylvania Ave, NW
Washington, DC 20580
Dear Madam Chairman:
The Department of Defense has completed a comprehensive assessment of the
impact of the proposed merger between the Lockheed Corporation and the Martin
Marietta Corporation on defense programs.
I am pleased to submit our
conclusions for the Federal Trade Commission's consideration in its review of
the merger.
Substantial consolidation among the defense suppliers is both inevitable and
necessary.
Between 1985 and 1995, the defense procurement budget will have
declined by almost two-thirds in real terms.
As a result, there is substantial
excess capacity in the industry.
To eliminate that capacity and the resulting
overhead costs, defense firms have begun to consolidate.
Since the Department
of Defense, and ultimately the U.S. taxpayer, bears the costs of excess
capacity and overhead in the defense industry, we clearly benefit from the
restructuring.
The Defense Department also recognizes that consolidation can threaten
competition, which itself drives down costs and spurs innovation.
Of course,
competition among firms in the defense industry is often significantly
different from competition among firms in commercial sectors of the economy.
For many products, the Defense Department is the predominant, or even sole,
customer.
We determine the characteristics of the products or services to be
acquired, as well as the quantity to be purchased.
We can, when appropriate,
fund the entry of new suppliers.
Finally, although we prefer competition, in a
sole source situation our acquisition process gives us both greater leverage
and more detailed information about our suppliers' costs and processes than
commercial buyers.
Because Lockheed and Martin are two of the largest defense firms, and the
corresponding potential benefits and risks could be substantial, we carefully
analyzed whether the merger would be in our interest as a customer.
In
particular, we considered whether it would enhance or undermine our ability to
obtain the best defense products at a reasonable cost.
We focused considerable attention on the effect of the merger on the
Department's space programs.
Both Lockheed and Martin Marietta are important
suppliers of satellites and satellite components.
Even after a merger,
however, we believe that there will remain an adequate number of sources for
out future purchases.
The Department can and will be able to draw upon the
skills and expertise of manufacturers of both commercial and military
satellites.
For this reason, we believe that the new corporation will not gain
an unacceptable market position in the satellite market.
During our review, we did identify several programs where the merger raised
some particular concerns.
We believe that the consent agreement addresses
these concerns appropriately.
With this consent agreement, the Department supports the merger of the
Lockheed and Martin Marietta corporations.
We believe that it represents a
step toward a stronger, robust industry that will result in savings to the U.S.
Government.
In closing, I would like to express my appreciation for the cooperation that
has taken place between the Federal Trade Commission and the Department of
Defense during our respective assessments of the merger.
From our point of
view, the public interest was well-served.
Sincerely,
John M. Deutch
