Tuesday, June 10, 2003

2:38:31 PM

comment []

A defense merger and what it means Defense giant General Dynamics has offered to acquire Veridian Corporation, in a move that will consolidate even further the American defense oligopoly. Verdian, which had revenues of $1.2 billion in 2003, specializes in areas that are very sexy post-9/11: network security; chemical, biological, and nuclear detetcion; and security data analysis. It works closely with US intelligence and security agencies. Veridian itself in 2002 acquired Signal Corporation, a $20 million IT support company. This move will solidify General Dynamics's role in the defense oligopoly. Since 1995, the company has completed over $10 billion of mergers with around a dozen different companies, expanding from naval work to aerospace and mobile warfare.  That puts it among the five companies that now control the industry, while ten years ago there were a dozen major companies. Among the Big Five, IT services are becoming the big deal, growing much faster than hardware. The other members of the top five are: Lockheed Martin, Boeing, Raytheon, and Northrop Grumman. The sixth largest contractor, United Technologies, had far lower defense revenues, about half of number five. General Dynamics, with over $7 billion in contracts was number four in 2002; Verdidian was number 54. What's behind it all, aside from the need to grow or die? In a related story in the June 10 Wall Street Journal called "Mergers Make it Tougher to Punish Federal Contractors," the author talks about the difficulty of disciplining companies that break laws and even commit fraud in fulfilling their contracts. The problem is that when a giant like Boeing or General Electric does wrong (and they have, outrageously), there are few or no other sources for the products and services they render, since they've bought up most of their rivals. Small companies are often banned from federal projects for such shenanigans, but big ones never are. As the article states, "The major reason for the dichotomy in debarring big and small companies has been the rash of mergers and acquisitions that swept across most industries. In the 1990s, when there used to be several options for obtaining a product of service, now there are perhaps just two, three at most. Government officials say cutting one of these companies off even temporarily hinders competition and innovation and provides the firm's rival with increased pricing clout." 2:35:13 PM

comment []