Plan Would Let US Block Deals For Security Reasons

The Pentagon and other U.S. government agencies should complete a legislative proposal in coming weeks to let regulators block proposed mergers for national security reasons, instead of just antitrust concerns, a top official said on Tuesday.

Defense Undersecretary Frank Kendall, who oversees arms weapons acquisitions and industrial base issues for the Pentagon, made the comments in an interview, after first mentioning the legislative push in September.

In September he raised concerns about further consolidation among the biggest players in the U.S. weapons industry, warning that big weapons makers were not hesitant to use the power that came with increased size for their own corporate advantage.

The comments came days after the U.S. Justice Department approved Lockheed Martin Corp's $9 billion takeover of Sikorsky Aircraft from United Technologies Corp, one of the biggest acquisitions in the weapons industry in years.

At the time, Kendall said the U.S. Justice Department cleared Lockheed's acquisition of the helicopter maker because there was no direct anti-competitive issue, but the Pentagon did not want to see its industrial base whittled down to two or three very large suppliers.

On Tuesday, Kendall said the Pentagon was working with the Justice Department and other agencies on a proposal that would add a national security provision to current law, much as mergers in other industrial sectors are subject to a "public interest" provision since they serve the nation.

He said the proposal should be wrapped up soon and sent to lawmakers for their consideration.

Kendall said the prospects for getting the legislation passed in a presidential election year were unclear, but it was important to address the issue. "It's a debate we should have," he said.

Pentagon officials have said that further consolidation among prime contractors in the weapons industry could lead to higher costs, decreased innovation and less competition.

Dozens of companies in the sector merged in the 1990s as military spending fell sharply after the end of the Cold War. The changes left five large contractors that dominate the market: Lockheed, Boeing Co, Northrop Grumman Corp, General Dynamics Corp and Raytheon Co.

Kendall said the Lockheed-Sikorsky deal would move a high percentage of the military helicopter market into a company that already dominates the U.S. fighter jet market as the prime contractor on the $391 billion F-35 fighter jet program.

Lockheed said there was no evidence that larger defense companies reduced competition or inhibit innovation.

(Reporting by Andrea Shalal; Editing by Andrew Hay)