3. The Secret to Subsidize Defense Contractor Mergers

Source: NEWSDAY Date: 7/28/94 Title: "Flak for Defense Merger" Author: Patrick J. Sloyan

SYNOPSIS: The Pentagon is secretly funneling taxpayer dollars to giant military contractors to help them grow even larger. This extraordinary Pentagon ploy to pay defense contractors billions of dollars to underwrite expenses connected with acquisitions and mergers was approved without any announcement in 1993; it was not discovered until July 1994.

According to Deputy Defense Secretary John Deutch, the unprecedented payment plan will save taxpayers money. Deutch said the mergers would help reduce overhead charges by defense contractors as the industry becomes smaller. Members of the House Armed Services Investigations Subcommittee rejected Deutch's explanation saying the policy was a potential windfall for defense contractors and an incentive for hostile corporate takeovers ... with taxpayers picking up the bill.

David Cooper, of the General Accounting Office, said that while no specific savings could be seen, the new policy could involve "several billions of dollars" in payments to defense contractors for post-merger restructuring costs that have yet to be defined.

Norman Augustine, chairman of Martin Marietta, a giant billion-dollar defense contractor, supported the plan, arguing that the federal government would reap lower costs from defense mergers over the long term. Under the plan, Augustine's company would get $270 million from the Pentagon to cover expenses related to the purchase of a subsidiary from General Electric. Martin Marietta already quietly received a $60 million payment from the Pentagon to buy a General Dynamics subsidiary.

It was Martin Marietta's Augustine who originally persuaded Defense Secretary William Perry and Deutch to approve the money-for-merger plan. Both Perry and Deutch were on the Martin Marietta payroll before joining the Clinton administration.

The administration's payment plan was challenged as illegal and unnecessary by Brookings Institute expert Lawrence Korb, senior Pentagon official during the Bush administration, who said "Taxpayer subsidization is not necessary to promote acquisitions and mergers."

SSU Censored Researcher: Will Beaubien

COMMENTS: Journalist Patrick Sloyan pointed out that his story had been distributed by the Los Angeles Times-Washington Post News Service but that the problem for him was not the lack of exposure.

"The real problem is the decline in enterprise reporting by the Establishment Press," Sloyan said. "Too much is made of reporting handouts by government public relations people." Sloyan added that his article was part of a series examining top Clinton Pentagon appointees and their close ties and fortunes made from the defense industry.

In late December 1994, The Wall Street Journal reported that a $10 billion mega-merger between defense giants Lockheed Corporation and Martin Marietta was approved by the Federal Trade Commission staff. Should the merger go through, the new company, to be called Lockheed Martin Corporation, would be the nation's largest defense contractor with 170,000 employees and $23 billion in annual sales.