Defense Industrial Policy

1
Defense Industrial Policy and Business
Combinations Some Observations   ABA Strategic
Alliances, Teaming and Subcontracting Committee
Suzanne D. Patrick DUSD (Industrial Policy) June
6, 2005
2
Major Levers of Defense Industrial Policy
Programs
Companies
The Defense Industrial Base
3
Defense Industrial Base Business Combination
Precepts

• Corporate Culture
• Strategic Alignment
• Sufficient Sources of Innovation

• Warfighting Leadership Goals as Framing Device
• Issues Relating to Small Company Innovation

• Process Fusion Exon-Florio and Hart-Scott-Rodino

ODUSD(IP)s Study, Adequacy of Regulatory
Frameworks for DoD Assessment of
Business Combinations, aims to identify potential
process improvements to address DoD concerns
similar concerns with regulatory framework are
being examined by GAO and the Congressional Antitr
ust Modernization Commission.
4
To Achieve IP Objectives Disparate Processes
with Differing Objectives
Exon-Florio
Hart-Scott-Rodino
DoJ/FTC
CFIUS
ATL/OGC
USD(Policy)
DUSD(IP)
The Defense Industrial Base
Objectives are the same among all actors
processes are disparate difficult and
cumbersome to fit common objectives into
discrete processes.
5
To Achieve IP Objectives Disparate Processes
with Differing Objectives (continued)
Exon-Florio
Hart-Scott-Rodino

• Precepts
• Capability and capacity of domestic industry to
  meet national defense requirements
• Potential effects of transaction on U.S.
  international technology leadership
• Potential effects of transaction on sales of
  military goods to any country identified that
• Supports terrorism
• Raises concern regarding WMD proliferation

• Precepts
• Does merger significantly increase concentration
  and result in a concentrated market?
• Does merger raise concern about potential adverse
  competitive effects?
• Can competitors enter (timely, likely and
  sufficient)?
• Does merger result in efficiencies?
• Will either party fail without merger?

• Remedies
• Corporate governance controls
• Outside directors, Technology Control Plans
• MOUs with the parties
• Technology controls, investment commitments
• Divestitures
• Sensitive business units
• Export licensing restrictions
• Presidential Investigation
• Potential block of the transaction

• Remedies
• Corporate governance controls
• Require information firewalls
• Memorandums of Understanding with the parties
• Direct sharing of capabilities
• Merchant supplier agreements
• Consent Decree
• DoD oversight of company decisions
• Require divestitures of horizontal capability
• Oppose
• File suit

Differing precepts and remedies available
challenge the Departments assessment
processand may be cumbersome for parties as well.
6
Warfighting Leadership Goals as a Framing Device
7
Business Combinations Decision Tree
8
Issues Relating to Small Company Innovation
I
II
III
IV
V
10 small companies
1 large and 10 small companies
2 large and 7 small companies
3 large and 2 small companies
3 large companies and 2 exit
9
Adequacy of Regulatory Frameworks for DoD
Assessment of Business Combinations Study
Methodology
ODUSD(IP)s Adequacy of Regulatory Frameworks for
DoD Assessment of Business Combinations Study
scheduled to publish late Summer 2005.