Martin Marietta Corp. and Lockheed Corp. say they will walk away from their proposed $10 billion merger if the government forces them to sell off substantial parts of their businesses.
According to the merger plan filed with the Securities and Exchange Commission, the two companies have agreed to terminate their agreement if a court or a government agency decision "substantially" changes the terms of the deal.
Charles P. Manor, a spokesman for Bethesda-based Martin Marietta, yesterday played down the significance of the language in the document, filed with the SEC on Friday, saying that the companies are only retaining the "right to review" any government impact on the merger before moving forward.
"This is precautionary language," he said. He stressed that the two companies still anticipate government approval of the largest merger ever within the defense industry.
"If a major change is required, it gives us the opportunity to take a serious look at it" before proceeding, Mr. Manor continued.
Such a demand could be coming, according to William Kovacic, a former attorney with the Federal Trade Commission.
"I would not be surprised if the FTC insists on some type of remedy to the problem of reduced competition," said Mr. Kovacic, who handled antitrust issues at the FTC from 1979 to 1983 and is now a visiting professor with the American University School of Law in Washington.
Mr. Kovacic said this could include a demand that Martin Marietta sell its secret spy satellite operations to another supplier, or that Lockheed sell its satellite business.
He said that while much of military spy satellite operations are secret, he estimates that a combined Lockheed and Martin Marietta could control about 60 percent of the business.
He said that views of the Central Intelligence Agency and the Department of Defense will be "extremely important" in determining the terms of a merger of the nation's second- and third-largest defense contractors.
"They are the customers and they are in the best position to evaluate the competition in the industry."
One concern for regulators, Mr. Kovacic said, is that a Lockheed and Martin Marietta merger would allow the combined company to so dominate the market that its smaller competitors, including Loral Corp., Hughes Aircraft Co., and TRW Inc., "would be reduced to distant also-rans."
Lockheed Martin, as the combined company would be called, would have 170,000 employees, annual sales of $23.5 billion and be involved in weapons programs ranging from fighter planes to Titan rockets to electronic warfare equipment.
According to Mr. Kovacic, the Department of Justice took a long time examining Martin Marietta's acquisition last year of General Electric Co.'s aerospace division because it was concerned about the consolidation of their satellite operations.
The Lockheed-Martin merger, announced Aug. 30, is currently under review by the FTC and the Department of Defense. "We believe there will be adequate competition," said Mr. Manor, the Martin spokesman.
The SEC filing also disclosed that Martin Marietta would be required to pay Lockheed a $100 million termination fee, plus $15 million to cover expenses, if it withdraws from the merger. The same would be true for Calabasas, Calif.-based Lockheed if it terminates the agreement.
Mr. Manor said that while this "is a significant amount of money, it is consistent with the size of the merger." He added that it was evidence of the commitment of the two parties to see the merger to a conclusion.