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Aviation History
1994
1994 - 2064.PDF
Lockheed Martin to rival Boeing RAMON LOPEZ/WASHINGTON DC LOCKHEED AND Martin Marietta expect to win final US Government clearance for their merger early in 199S, so creating a new corporate giant which stands to challenge Boeing for its lead in the world aerospace industry. The new Lockheed Martin will hold dominant positions in com bat aircraft, military transports, space systems and defence elec tronics. The merger will create a "highly diversified" business employing around 170,000 and with total sales of $23 billion. Valued at $10 billion, the deal will be the largest in the wave of mergers and acquisitions which have re-shaped the US defence and aerospace industry. This latest merger is more than twice the value of the General Motor's acquisition of Hughes which had set the previ ous record, and also dwarfs the tie- up between Northrop and Grumman earlier this year, valued at just under $2.2 billion. Martin Marietta had itself angled to acquire control of Grumman, but ultimately refused to enter a bidding war and left the field clear for Northrop. It has since been revealed that Lockheed chairman Dan Tellep sparked off the latest merger talks in mid- March by telephoning his oppo site number at Martin Marietta, Norman Augustine, shortly after the Grumman bid had been dropped. Nearly six months of clandestine negotiations followed. The deal still has to win approval from the US Departments of Defense and Justice and the Federal Trade Commission, which will scrutinise issues raised over competition and monopoly. Senior Department of Defense officials agree that "...conceptual ly, the merger makes sense", adding that there is recognition Top five US aerospace-industry mergers Rank Target company Buyer/Partner Value Tellep (left) and Augustine shake industry with merger agreement that "...consolidation of the defence industry is both inevitable and necessary as the defence bud get declines". The largest competition con cerns are likely to centre on over lapping satellite and space-launch businesses, especially with Martin Marietta's recent acquisition of the General Dynamics Atlas 1993 aerospace sales ($bn) I 2 3 4 5 9 10 Boeing Lockheed Martin MDC UTC GM Hughes Northrop Grumman GE Raytheon Rockwell AlliedSignal 25 21.8 14.2 9.4 8.3 7.7 6.6 6.3 5.4 4.5 1 C M n 4 5 Martin Marietta/Lockheed Hughes Aircraft GE Aerospace IBM Federal Systems GD (military aircraft) General Motors Martin Marietta Loral Lockheed $ million 10,000 5,000 3,000 1,570 1,530 space-launcher line. Lockheed, meanwhile, is marketing Russian- built Proton launchers. Tellep argues that the Proton is not a competitor for Martin Marietta's Titan launcher and notes that there are important dis tinctions with the Adas. Augustine adds that he does not expect anti trust concerns in this area. "There is plenty of competition, especial ly overseas," he says. Tellep believes that despite the questions over the Space division, the merged group can demonstrate "...plenty of robust competition in all other business sectors". He expects the deal to "...hurdle US anti trust laws". Although the merger has already been agreed by the direc tors of the two groups, the merger must still win endorsement from shareholders. The proposal is to merge the ownership of the cor porations through a tax-free exchange of common stock valued in excess of $10 billion. Tellep says that the proposed merger should not come as a sur prise. He calls it the "next logical step" for both firms as they enter the 21st century. "Both companies are in a strong position, but we want to be more than just sur vivors," he says. Tellep believes that the combined company offers growth in non-defence and inter national markets while maintain ing dominance in the dwindling defence industry. Augustine agrees that each company needed "critical mass" in the face of growing foreign com petition in the international mar ketplace. "Failure to change is failure to survive," he says. The merged Lockheed Martin will be on course to topple Boeing from its lead in the world aero space industry. On 1993 figures, Boeing was still ahead of the com bined Lockheed and Martin Marietta sales in the industry, but the lead has been narrowing. By the end of 1994, Boeing expects its group turnover to have slumped to around $21 billion. If Lockheed and Martin Marietta continue their form in the first half of the year, produc ing combined aerospace sales of around $10.7 billion, they could better the figures from Seattle. • Lockheed and Martin plan to share power LOCKHEED AND Martin Marietta have underlined their intention to create a "merger of equals" by announc ing plans to share power within the boardroom of the merged Lockheed Martin giant. Daniel Tellep, Lockheed's 62-year-old chairman and chief executive, will head the new aerospace and defence corporation, while Martin Marietta's chief, the 59-year- old Norman Augustine, will initially serve as president. It has already been settled that Augustine is to take over the top job when Tellep retires at 65, or sooner. Although agreeing to share power, the two long-time friends say only one person can run the shop. Augustine states that "the final vote goes to Dan". Headquarters will be con solidated at Martin Marietta's base in Bethesda, Maryland, rather than Lockheed's head office at Calabasas, California. Other management jobs at the merged company have also been split evenly. Martin Marietta's Thomas Young, who will retire next July, will serve as executive vice-presi dent (VP). Lockheed's Vincent Marafino will move to the headquarters in Bethesda, Maryland, to become another executive VP, while Martin Marietta's Marcus Bennett stays to become the senior VP and chief financial officer. The four major businesses will be headed by: Lockheed's Vance Coffman (Space & Missiles); Martin Marietta's Thomas Corcoran (Elec tronics); Lockheed's Ken neth Cannestra (Aeronautics) and; Martin Marietta's Peter Teets (Information » Technology Services). J 6 FLIGHT INTERNATIONAL 7 - 13 September
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