The proposed merger of Martin Marietta Corp. and Lockheed Corp. passed a major hurdle yesterday when the Department of Defense approved the $10 billion consolidation that would create the nation's largest defense contractor.
"Consolidation among defense suppliers is both inevitable and necessary," Deputy Defense Secretary John M. Deutch said in a letter to Federal Trade Commission Chairman Janet D. Steiger.
Although expected, the Defense Department's blessing was not automatic.
Mr. Deutch said that during the Pentagon's review process it identified "several programs where the merger raised some particular concerns." But, he added, the consent agreement reached last week between the companies and the FTC "addresses these concerns appropriately."
He was referring to an agreement that would help guarantee competition in the military satellite business by restricting a combined Lockheed Martin Corp. from teaming with other satellite makers to pursue contracts.
"With this consent agreement, the department supports the merger of the Lockheed and Martin Marietta corporations," Mr. Deutch said. "We believe that it represents a step toward a stronger, robust industry that will result in savings to the U.S. government."
Martin and Lockheed are both closed for the holidays. But a Martin Marietta spokeswoman, Karen Purdy, who was reached at home, said: "We are pleased with the Department of Defense's position."
Ms. Purdy said that Bethesda-based Martin Marietta "believes that there are substantial efficiencies to be gained by the government through the proposed merger."
The Martin Marietta spokeswoman said the cost savings could be "in the multibillion dollar range," but this is yet to be determined because the law prohibits the two companies from sharing certain financial information until the FTC approves the merger.
The combined companies would have 170,000 workers, including about 4,300 in Maryland. Annual revenues would be $23.5 billion, with a business backlog of $43.6 billion. The headquarters would remain in Bethesda.
The FTC is expected to vote in the merger in early January. Assuming the plan is approved, the two companies will then schedule special shareholders' meetings for investors to vote on the plan.
Lockheed and Martin Marietta officials have said they would want to share in the government's saving as Martin Marietta did in its $209 million acquisition of General Dynamics Corp.'s rocket division earlier this year.
In his letter, Mr. Deutch said: "We focused considerable attention on the effect of the merger on the [Defense] Department's space program. Both Lockheed and Martin Marietta are important suppliers of satellites and satellite components."
But he noted that even after a merger, the companies believe that "there will remain an adequate number of sources for our future purchases," and said the government believes "that the new corporation will not gain an unacceptable market position in the satellite market."
Analysts had speculated that the FTC might force Martin Marietta or Lockheed to sell its secret spy satellite operations to another supplier.
The two companies said in October that they were prepared to cancel the merger if the government forced them to sell off substantial parts of their businesses.