Despite concerns that GenCorp Inc.’s [GY] pending acquisition of United Technologies Corp.’s [UTX] Rocketdyne division will create a monopoly for a certain type of missile defense propulsion system, the Federal Trade Commission (FTC) on Monday unanimously approved the deal after the Defense Department said there are national security and industrial base benefits to be gained from the merger.
The $550 million acquisition was announced in July 2012 but the FTC later said it had antitrust concerns related to the Liquid Divert and Attitude Controls (LDACS) businesses of both GenCorp’s Aerojet division and Rocketdyne, prompting GenCorp to announce in January that it was preparing to sell its LDACS business to help expedite the agency’s investigation of the merger (Defense Daily, Jan. 10, July 24, 2012).
Now GenCorp won’t have to divest its LDACS business.
“Based on the Department of Defense position, the Commission concluded that it was not feasible to remedy the loss of completion in the LDACS market,” the FTC said in a statement. “The Commission therefore voted to close the investigation and allow the transaction to proceed unchallenged to preserve the potential benefits cited by the Department of Defense.”
During its investigation, the FTC found that the acquisition would give GenCorp a monopoly in the LDACS propulsion systems used on exo-atmospheric kill vehicles used in missile defense. That monopoly would lead to price increases and a lack of innovation in LDACS and “few, if any, cognizable efficiencies,” stemming from the combination, the FTC said.
However, Susan Raps, deputy General Counsel for DoD Acquisition and Logistics, wrote in a June 6 letter to the FTC that in the near and mid-term competitive opportunities for LDACS work will be lacking, which will “mitigate” a monopoly of these capabilities.
Raps also said that due to national security concerns the Missile Defense Agency can’t afford to have disruptions in either GenCorp’s or Rocketdyne’s LDACS production lines.
“For both technical and geopolitical reasons, neither of which is appropriate to disucss in an unclassified environment, there cannot be any perturbations in the production lines or deliver schedules of either” companies’ product. She said that in the near-term a divestiture of either LDACS business at a minimum would cause employees to be “distracted” and at worst “cause unidentified faults of failures in fielded systems design to protect the U.S. homeland against intercontinental ballistic missiles or U.S. and allied forces abroad against short-range and medium-range ballistic missiles.”
The acquisition, which GenCorp said in January is slated to close during the first half of 2013, would significantly increase its heavy lift engine business. Rocketdyne produces the RL10 upper stage for the Atlas V launch vehicle Delta launchers. The company also produces the RD-180 booster rocket and RS-68 booster.
GenCorp’s Aerojet division is known more for its tactical rocket motors and propulsion business although it makes or modifies three engines for different space launch vehicles.
UTC is selling the Rocketdyne business, which is part of its Pratt & Whitney division, to raise cash related to its acquisition Goodrich.