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IMMEDIATE RELEASE

Release No: 719-94
December 29, 1994

DEFENSE DEPARTMENT ENDORSES LOCKHEED/MARTIN MARIETTA MERGER

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

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