Enterprise Restructuring in the FSUIn August 1994 Martin Marietta Corp. and Lockheed Corp., two leading U.S. defense contractors, announced a merger. Martin Marietta builds nuclear missiles, fighter planes, satellites, satellite lunch vehicles, and computer systems. Martin Marietta recently bought General Electric's aerospace operations and General Dynamics' space systems. Lockheed builds fighter planes, satellites, and computer systems, and it recently acquired General Dynamics' fighter plane operations. The merger of Martin Marietta and Lockheed through an exchange of $10 billion of stock between the companies creates the largest space and defense company in the U.S. The new company will have annual sales of $23 billion and 170,000 employees. About 60% of this business is with the U.S. Defense Department.
The significant merger activity in the U.S. defense industry comes in the context of U.S. military procurement spending that is much lower than the level in the mid-1980's. Rather than diversifying into non-military production, U.S. defense companies are consolidating into larger companies. One interpretation is that these consolidations are ways in increase production efficiency and maintain economies of scale. Another interpretation is that U.S. defense companies are seeking to increase their market power and lobbying clout so that they can better resist reductions in U.S. defense spending.
Enterprise Restructuring in the FSU