Washington Update: Defense Department Gets Tougher

A friend of mergers that consolidated the military equipment industry in the 1980s, the Defense Department has become chillier toward dealmaking in the 1990s. In smiling on major deals of the past, the department was mostly interested in assuring supplies rather than considering the implications for marketplace competition from fewer players. Now it worries that too much concentration may put it at a price disadvantage and boost procurement bills. The latest proposed transaction shot down by Defense Department flak involved the unsolicited bid by Litton Industries Inc., whose product portfolio includes ships for the Navy, to acquire Newport News Shipbuilding Inc. for $1.8 billion. Litton withdrew the offer after it drew opposition from Defense Secretary William Cohen. Litton’s fallback was to proceed with the $529 million acquisition of smaller Avondale Industries, maker of auxiliary and amphibious craft for the military, which had not been opposed in Washington. Pro-Competitive Prod In Telephone Deal The Federal Communications Commission (FCC) tentatively cleared the long-pending mega-merger of SBC Communications Inc. and Ameritech Corp., after attaching strings designed to generate more vigorous competition in telecommunications. Under the unique conditions, the combined company would have to expand into some 30 areas it does not already serve and, concurrently, clear the way for more local-service telephone players to compete in its basic territory. The conditions could become a prototype for approvals in regulated industries that are heavily consolidating. When the $78 billion SBC-Ameritech merger takes place, the number of Baby Bell, or RBOC, phone companies will be reduced to two. SBC serves a huge swath of the West and Southwest, with other operations in New England, while Ameritech is concentrated in the Midwest. The FCC moves followed criticism by consumer and other groups that the wave of telecom mergers has not promoted the degree of competition that was intended by the Telecommunications Act of 1996, which deregulated the industry.