FTC Approves Concludes Investigation of GenCorp’s Purchase of Pratt & Whitney Rocketdyne

The Federal Trade Commission has closed its investigation into the proposed acquisition of rocket engine manufacturer Pratt & Whitney Rocketdyne by aerospace company GenCorp Inc. Although the FTC concluded that the deal will give GenCorp a monopoly in the market for a type of advanced missile defense interceptor propulsion system, the Commission decided not to challenge the transaction, primarily because the Department of Defense wishes to see the transaction go forward for national security reasons.
On July 22, 2012, GenCorp agreed to purchase Pratt & Whitney Rocketdyne (PWR) for about $550 million. Both PWR and GenCorp’s Aerojet-General Corporation (Aerojet) subsidiary develop and manufacture liquid rocket propulsion systems for launch vehicles, spacecraft, strategic missile systems and ballistic missile defense systems.

Based on its investigation, the FTC found that the deal would give GenCorp a monopoly in the market for liquid divert and attitude control systems (LDACS), which are very high-performance, small pressure-fed liquid rocket propulsion systems that have a highly specialized application on missile defense interceptors. As stated in the FTC staff’s letter to Defense Department Deputy General Counsel Susan P. Raps,”the transaction therefore is likely to 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.” In addition, the FTC concluded that there are few, if any, cognizable efficiencies that would result from the merger. It also found that there are substantial barriers preventing new companies from entering the LDACS market. “For this reason, absent countervailing public interest considerations, the proposed acquisition would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act if consummated,” the letter states.

The Department of Defense, however, identified potential non-economic benefits that may result from the transaction, including sustainment of certain industrial base assets and capabilities necessary to meet the Department of Defense’s space launch requirements and determined that a divestiture of either company’s LDACS business is “impossible due to highly unusual national security circumstances.” The Department requested in a letter to the FTC that “the Commission allow [Aerojet] to acquire PWR despite the anticompetitive result in the LDACS market.”

Based on the Department of Defense position, the Commission concluded that it was not feasible to remedy the loss of competition in the LDACS market. 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.

The Commission vote to close the investigation was 4-0.