Antitrust Law Daily Wrap Up, TOP STORY—FTC Defers to Department of Defense, Clears Aerospace Firm's Acquisition of Rocket Engine Maker Without Conditions, (Jun 10, 2013)

By Jeffrey May, J.D.

The FTC announced today that it has closed its investigation into the proposed acquisition of rocket engine manufacturer Pratt & Whitney Rocketdyne from United Technologies Corporation by aerospace company GenCorp Inc., even though the agency concluded that the deal will give GenCorp a monopoly in the market for liquid divert and attitude control systems (LDACS). The FTC did not impose any conditions on the acquisition because the Department of Defense had requested that the $550 million transaction be permitted to go forward without remedying its anticompetitive effects "for both national security and industrial base reasons."

In an FTC staff letter to Defense Department Deputy General Counsel Susan P. Raps, the agency contended that the transaction would likely “lead to an increase in price and a reduction in the pace of innovation for LDACS, to the detriment of the Defense Department, the ultimate customer for LDACS.” LDACS are very high-performance, small pressure-fed liquid rocket propulsion systems that have a highly specialized application on missile defense interceptors. In addition, the FTC concluded that there were few, if any, cognizable efficiencies that would result from the merger. It also found that there were substantial barriers to entry in the market.

According to Defense Department, a structural remedy to the LDACS merger-to-monopoly situation was impossible due to highly unusual national security circumstances. The Defense Department urged the FTC to “consider the overall national security and industrial base benefits of this transaction as counterbalancing the loss of competition in a small niche market.”

The FTC had conducted an in-depth investigation of the transaction, which was announced in July 2012. The agency had issued second requests to the parties last year. The second requests were modified in January to exclude from the scope of the investigation large and medium liquid rocket engines for launch vehicles and spacecraft.

GenCorp. announced the modification of the second request in January. At that time, GenCorp. said that it was working with the FTC and was in the process of preparing its LDACS business for sale to facilitate an expeditious completion of the FTC's investigation.

This is FTC File No. 121-0182.

Attorneys: Jeffrey P. Bialos (Sutherland Asbill & Brennan LLP) for GenCorp Inc. David A. Schwartz (Wachtell, Lipton, Rosen & Katz) for United Technologies Corp.

Companies: GenCorp Inc.; United Technologies Corp.

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