NCPA - National Center for Policy Analysis

U.S. Pushing Defense Industry Mergers With Europeans

July 7, 1999

Pentagon officials are in talks with European governments and leading defense companies aimed at encouraging transatlantic mergers and other arrangements. Experts say that defense consolidation is all but complete among prime contractors in the U.S. But consolidation in Europe is only now gaining momentum.

  • Until now, there has been confusion as to U.S. policy toward mergers and combinations because the Pentagon in the past year has vetoed several proposed domestic combinations.
  • U.S. officials say the Kosovo air campaign revealed separations in technology between the U.S. and European suppliers that could be harmful if allowed to continue.
  • Although the Pentagon earlier rejected Lockheed Martin Corp.'s efforts to take over Northrop Grumman Corp. in a purely domestic combination, officials now say they wouldn't dismiss the possibility of allowing Northrop Grumman to be purchased by a French, German, British or perhaps an Italian firm.

In a related move, Pentagon and British officials have begun negotiating a new set of rules that would govern the handling of sensitive information and technology. Once the precedent for such procedures is established, the Pentagon hopes to negotiate a similar information-security agreement with Germany.

Such transfers would become an issue in Congress in the wake of disclosures of Chinese espionage directed at U.S. nuclear weapons.

Source: Thomas E. Ricks, Anne Marie Squeo and Jeff Cole, "Pentagon Discussing With Europeans Possibility of Mergers With U.S. Firms," Wall Street Journal, July 7, 1999.


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