The Pentagon Grounds Aerospace Merger

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WASHINGTON: The defense industry is now as consolidated as itís going to get. Succumbing to fierce opposition from both the Department of Justice and the Pentagon, aerospace giant Lockheed Martin threw up its hands Thursday and abandoned its planned $8.3 billion acquisition of Northrop Grumman. The lesson: Donít fight the Pentagon Ė- thatís what it does best. After giving its blessing in 1993 to consolidation and ushering in a feeding frenzy of takeovers and mergers, the Pentagon decided that enough was enough, and it would accept nothing less from Lockheed than complete surrender.

While Northropís ability to survive alone is in doubt, Lockheed, the nationís No. 2 defense supplier, can live without the deal. Dropping its sword became merely a matter of not angering its biggest customer. For the Pentagon, halting the shrinkage of its stable of weapons suppliers was more than an economic decision. In the defense industry, decreased competition means not just potentially higher prices but potentially lost lives. Bet Joel Klein wishes he could use that argument against Microsoft.