Reno moves to block Lockheed merger

THE US Justice Department yesterday said it was suing Lockheed Martin to block its proposed merger with Northrop Grumman, saying it would result in unprecedented concentration in the defence industry.

The Justice Department's demand that Lockheed's $12bn (pounds 7.3bn) acquisition be stopped follows a government debate about whether the post-cold war consolidation of US defence contractors had gone too far. Northrop shares have lost a quarter of their value in the two weeks since the dispute surfaced publicly.

The outcome of the case will have wide implications for the world's defence industries

Lockheed Martin said it would fight in court to complete the acquisition, but Attorney General Janet Reno promised an all-out battle. "This merger isn't just about dollars and cents," she said. "It's about winning wars and savings lives."

Lockheed Martin and Northrop are the US military's only suppliers of hi-tech warfare systems, including airborne early warning radar. Allowing them to combine "would result in substantially less, and in several cases eliminate, competition in major markets critical to the national defence," according to the lawsuit.

The US Defense Department agreed with the decision to file the lawsuit. "We have concluded that partial solutions addressing individual competitive issues will not be adequate," William Cohen, Defense Secretary, said.

Mr Cohen said the Pentagon was not imposing a ban on mergers. Instead, each proposed combination will be reviewed on a case-by-case basis, he said.

As a practical matter, though, most of the consolidation in the US has been completed. There are now just three big US defence contractors - Lockheed Martin, Raytheon, and Boeing - and two military aircraft makers - Lockheed and Boeing.

- Bloomberg