Sen. Lott's Allegiance Lies Within Northrop Grumman

Friday, May 11, 2001
Senate Majority Leader Trent Lott, (R-Miss.), is lobbying the Pentagon to accept Northrop Grumman Corp.'s bid for Newport News Shipbuilding over a competing proposal from General Dynamics Corp., according to a letter released by Northrop on Thursday.

In a letter dated May 9 to U.S. Defense Secretary Donald Rumsfeld, Lott criticized the General Dynamics bid and said the Northrop-Newport combination is in the country's "best interest." Lott's Mississippi district is home to a large shipyard owned by Northrop, and his letter contains some of the same arguments being advanced by the company.

In it, Lott criticized General Dynamics $2.1 billion offer, saying it "would result in the loss to the government of any competition and the ability to compare prices, quality, and innovation in the shipbuilding industrial base."

In order to wring cost-savings out of its proposed acquisition, Lott argues, General Dynamics will have to shut down some shipbuilding capacity and lay off employees.

Lott said Congressional researchers had concluded that the combination of General Dynamics and Newport News would give the merged company 70 percent of all U.S. shipbuilding revenues, 80 percent of design and engineering staff, and more than 95 percent of research and development funding.

"In time, this concentration would result in a complete monopoly of Navy nuclear and non-nuclear shipbuilding and repair/overhaul work in one company," Lott wrote.

Either deal would have to be approved by the Pentagon and antitrust regulators at the U.S. Justice Department.

General Dynamics and Newport News both have dismissed concerns that their mutually negotiated merger would cramp competition. They say the merger will save the government money.

However, Lott noted in his letter that similar concerns sank a 1999 proposal by General Dynamics. In contrast to the General Dynamics proposal, Lott wrote, allowing Northrop Grumman to acquire Newport News would "preserve competition" by creating two equal-sized companies, Northrop and General Dynamics.

Northrop has argued that its purchase of Newport News would keep the country's two main nuclear shipyards separate. Newport News, which builds nuclear-powered aircraft carriers and submarines, and Northrop Grumman, maker the combat electronics and the B-2 bomber, have no overlapping products, Northrop said.

The other key senator with an interest in the merger proposals, Armed Services Committee chairman Sen. John Warner, (R-Va.), has yet to take sides in the dispute.

Warner, whose district houses Newport News's shipyard, had thrown his support behind the General Dynamics bid. But on Wednesday he sent a letter to Rumsfeld urging only that the Pentagon "carefully evaluate" the merger proposals' impact on national security.

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