Deal seems likely to receive favorable, rigorous review Antitrust analysts expect officials 'to make sure they get it right'

THE BALTIMORE SUN

WASHINGTON -- Federal antitrust officials appear to be open dTC to the wave of mergers among the defense industry's major companies, though not quite ready to endorse the idea that anything goes.

That view, emerging from both the government and outside antitrust analysts, seems to suggest a favorable -- but probably rigorous -- review when officials assess the newly announced merger plan of Lockheed Martin Corp. and Northrop Grumman Corp.

The Justice Department and the Federal Trade Commission withheld comment yesterday on the deal, saying it was too early to react. One or the other agency -- not both -- will review the deal.

With two such large, healthy competitors planning to join forces, federal officials who review its legality "are likely to make sure they get it right," said Charles F. Rule, a Washington lawyer and a former antitrust chief in the Justice Department.

"There is some talk" among industry observers, Rule said, "that we may have gotten to the point where there are too few defense companies."

But, he added, "that is unlikely to be the view" of the three federal agencies that will be involved. They are the Pentagon and the two agencies that oversee corporate mergers -- the Justice Department and the FTC.

Critic's view

Ralph Nader, the consumer advocate who is a critic of the Clinton administration's record on mergers, said those agencies "have got to start thinking about putting on the brakes" in the defense industry.

The Lockheed-Northrop deal, Nader said, "is going to give them trouble: Now they have to face the reality of generating a push to come up with just two [surviving] defense contractors. If they approve this one, it will put into motion other mergers."

The Lockheed-Northrop plan, Nader added, "signals the collapse of the deterrent effect of antitrust law" on other defense companies.

Rule, Nader and other analysts suggested that the Pentagon's response to the proposed deal will be decisive for the two other agencies when they examine the deal's antitrust issues.

"There is a sense within the defense establishment and the Pentagon that as long as there are two large, aggressive competitors [remaining] that you're going to have sufficient competition," Rule said.

A merger of Lockheed Martin, already the nation's largest military contractor, with Northrop Grumman would leave Boeing Co. as the No. 2 military supplier. The FTC last week voted to allow a merger of Boeing and McDonnell Douglas Corp.

'Rather generous review'

A defense industry analyst, Ted Galen Carpenter, vice president of the Cato Institute, a private, conservative research group, agreed that the antitrust agencies have been giving "a rather generous review to mergers in the industry."

Carpenter said he had the "general impression" that antitrust review "is loosening," mainly because of the Defense Department's desire for "a healthy industrial base" in the wake of sharply lower Pentagon spending on projects.

Still, Joel Klein, the antitrust chief at the Justice Department, said this week, after deciding not to challenge a Raytheon-Texas Industries defense merger, that "while industry downsizing can be desirable, or even necessary, we will do what it takes to preserve effective competition."

That the department required Raytheon to spin off a unit that makes computer chips shows, Klein said, "that we're not going to give carte blanche approval to mergers in the defense industry."

The FTC decided not to block a Boeing-McDonnell Douglas merger, even though the commissioners publicly suggested that that consolidation "on its face appears to raise serious antitrust concerns." The majority was able to put aside those concerns, but one of five commissioners dissented.

Pub Date: 7/04/97

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