Why Lockheed Martin's Latest Deal Is Falling Apart

Lockheed Martin (LMT -0.75%)'s proposed acquisition of Aerojet Rocketdyne (AJRD) has been more than a year in the making, but it still faces significant stumbling blocks -- from the Federal Trade Commission (FTC), in particular. In this episode of "Motley Fool's Metal and Power Half-Hour" on Motley Fool Live, recorded on Jan. 25, Fool.com contributors Toby Bordelon and John Bromels discuss how the market has reacted to news updates about the $4.4 billion deal.

John Bromels: For those of you who cover aerospace and who are watchers of the aerospace and defense industry, you know that for a long time -- in fact, for more than two years -- this merger has been pending between Lockheed Martin and a company called Aerojet Rocketdyne.

Toby Bordelon: There's a lot going on there in that name.

Bromels: To me, it sounds like the company that I would've come up with when i was seven years old and like wanted my airship company to have name: Aerojet Rocketdyne. Anyway, Lockheed was going to buy Aerojet Rocketdyne primarily for, it seems, to get a hold of some of the hyperspeed technology that Aerojet Rocketdyne had and hoping to really supercharge its hypersonic defense applications. This was announced in December of 2020. I'm sorry. Actually, more than one year ago, not more than two years ago. That's my math error. In December 2020, they announced this, and it really hasn't made a whole lot of progress. But then two weeks ago, it was announced that the antitrust regulators, the FTC, was delaying its decision that it was going to make on whether this merger or this acquisition could proceed. That actually excited the stock market, and Aerojet Rocketdyne stock went up because they thought that a delay was actually good news and meant that the merger was more likely to go through, excuse me, the acquisition. Just, was it this morning?

Bordelon: I think it was this morning, right?

Bromels: Yeah, it was this morning. Just this morning there was a press release. Aerojet Rocketdyne put out a press release saying that they've been advised by the FTC that the concerns that the FTC has "cannot be addressed adequately by the terms of the proposed consent order." What that means in layman figures.

Bordelon: Looks we got a freeze-up on you, John, there. You're back with us? No. John will be back to close this out. But essentially, what happened here is they said, let's see if I can pull up the exact language for you guys here. Because they couldn't address the concerns, essentially, it looks like the deal is probably not going to happen. That's what we're looking at right now. If you were hoping this deal was going to go through, it's just looking like no. That's looking like it's not going to be the case right now. We don't know for sure, but what we're essentially saying here is it's likely, the company's saying, it's likely the FTC is going to sue to block this deal. Given that we're not sure what Lockheed Martin is going to want to do. Are they going to want to go through with it, are they going to want to challenge this, are they going to want to defend it? They might not. They might just want to say, "You know what? Too complicated. We're out, we're calling into law, we don't want this court fight." That's unclear yet. Maybe they can with a compromise that can still make this happen, but it's not looking good, and so Aerojet stock is down, I think 15 percent down today. The deadline, I believe is, actually, they were supposed to sign off on 27th, so two days from now. We don't have that, so I don't expect suddenly the FTC to change their mind in two days, but look for additional news on this. I would suspect later this week to see. I imagine Lockheed is probably huddling with their lawyers and their advisors saying, "What do we want to do with this? How do we move forward here?" But at this point, if I had to guess, I would suspect the deal is not going to happen.