Defence firms merger heads for approval

Date: 14/03/1996

THE creation of one of the world's biggest defence electronics firms is expected to be cleared by the European Commission at the end of the month, according to industry sources.

The clearance of the 8-billion-ecu link-up between American companies Lockheed Martin and Loral should coincide with approval from US competition authorities.

“We are encouraged that we will close the deal sometime around late March or early April,” said an official at Lockheed Martin.

Speculation grew at the end of February that DGIV (competition) had serious misgivings about the combined strength of the group after officials asked the firms to re-file the notification of the merger.

The original notification was made on 30 January, but the Commission requested supplementary information in certain product areas, leading to a re-notification last week.

The Commission's interest has surprised some in the industry since neither company has a significant manufacturing presence in Europe, unlike the recent Kimberly-Clark union with Scott Paper.

The impact they do have in Europe is as giant sellers of products from stealth fighters to satellites. They also have a 33&percent; stake in the leading commercial satellite manufacturer Space Systems/Loral, along with European manufacturers Alenea and Aérospatiale, and a 31&percent; interest in the 1.5-billion-ecu world-wide satellite-based communications system Globalstar.

Industry-watchers believe US authorities were only concerned with the aerospace aspect of the merger. While the two firms have complementary businesses in the areas of electronics, tactical systems and information and technology services, the unusual structure of the agreement is believed to have headed off anti-trust objections.

Under the complex deal, Lockheed Martin acquires Loral's defence electronics and systems businesses for 7 billion ecu, and assumes the latter's debt. Instead of creating a giant merged company, they will form a new firm called Loral Space & Communications Corporation in which Lockheed Martin will have just a 20&percent; stake.

“They effectively pre-empted by far the biggest anti-trust issue while, at the same time, resolving a dispute over the valuation of the company with Loral,” said an industry source.

The merger is the latest in a series of concentrations in the US defence and aerospace industry since the end of the Cold War, which has seen the elimination of companies with a marginal presence in the market and the creation of omnibus hardware and electronics firms.

Lockheed Martin was itself only created a year ago from a merger between Lockheed and Martin Marietta.