Deputy Secretary of Defense John J. Hamre today advised the Antitrust Division of the Department of Justice that DoD believed that the provisions of DoJ's consent decree, including divestiture of several key businesses, were required as conditions for approval of Raytheon's acquisition of Hughes Aircraft Company.
In a letter to Assistant Attorney General Joel Klein, Hamre stated that the acquisition would adversely affect competition for ground electro-optics systems and that divestiture of both focal plane array and second generation ground electro-optics businesses therefore was required. Hamre noted the consent decree "addresses appropriately these concerns and maintains competition for DoD programs."
Hamre also stated that the Department had carefully reviewed the effect of the transaction on the procurement of air-to-air missiles. The review found that the components and characteristics of these missiles are shared by all air-intercept missiles and that the strengths of other companies in this market will ensure robust competition for any future programs.
The DoD reached its decision after a comprehensive review of the transaction and its effect on defense programs. The Department carefully examined ongoing and anticipated programs, as well as markets, where these two companies compete. The Department also examined vertical relationships affected by this transaction.
During the review, DoD staff worked closely with the staff of DoJ's Antitrust Division. In his letter, Hamre congratulated the two agencies on their cooperation in serving the public interest.
A copy of Hamre's letter is attached.
- Mr. Joel I. Klein, Esq.
- Assistant Attorney General
- Antitrust Division
- 950 Pennsylvania Avenue, NW
- Washington, DC 20530
Dear Mr. Klein:
The Department of Defense has completed a comprehensive review of the proposed acquisition of Hughes Aircraft Company by Raytheon Company. During our review, we carefully examined ongoing and future programs of the Department in which the two companies compete or can be expected to compete. We also examined the markets in which these two companies are, or are likely to be, defense suppliers, as well as the vertical relationship involving these two and other firms.
In the past three years, the defense industry has undergone significant restructuring in response to the reduction in procurement spending. The Department of Defense has reviewed carefully these mergers and acquisitions and evaluated their effect on defense programs. Given the current structure of the defense industry, the size of the two companies involved in this transaction, and the scope of the products they provide, we paid considerable attention to this transaction as well.
We focused, particularly, on the effect of this transaction on the Department's missile programs. Both Raytheon and Hughes Aircraft Company have been important suppliers of air-to-air missiles. The critical characteristics of these missiles are that they can identify and destroy a fast-moving airborne target. These same characteristics are shared by all air intercept missiles, including those fired from either land or sea-based platforms. For this reason, we believe that the new corporation's position in this market is acceptable and that there will be robust competition for any future air intercept missile program.
- During our review, we identified two missile programs in which the transaction raised some particular concerns. In the case of the Advanced Medium Range Air-to-Air Missile (AMRAAM) Raytheon and Hughes are the only two firms competing for annual production of this missile. However, because of the significant reduction in purchases of AMRAAM missiles, the Air Force--even before this transaction was announced--had concluded that it would not be economical to sustain two producers. We believe that the timing of the implementation of the consent agreement will ensure that the merger will not adversely affect the Department's acquisition strategy with regard to this program. In the case of the Follow-On To TOW (FOTT) program we believe that the consent agreement adequately addresses our concerns.
- We also reviewed carefully electro-optics systems. Raytheon and Hughes are the two principal suppliers of electro-optics systems for ground combat vehicles. In our judgment, the merger of these two companies would adversely affect competition both for focal plane arrays (a key component) and second generation ground electro-optics systems. The consent agreement, which provides for divestiture of key business units in these areas, addresses appropriately these concerns and maintains competition for DoD programs.
Once again, I note, with pleasure, the outstanding cooperation that has taken place between the Department of Justice and the Department of Defense during our reviews of this transaction. From our point of view, the public interest was well-served by this process.