Center Warns Against Corporate Raids On US Security

The Center for Security Policy today called attention to the potentially serious national security consequences of corporate raids on companies performing vital functions for the Defense Department. One such company — Lockheed Corporation — is under assault from an individual, Harold Simmons, whose previous hostile takeovers have done serious violence to the financial health and productivity of his corporate victims.

The Center’s director, Frank J. Gaffney, Jr., noted, “The Simmons proxy fight for control of Lockheed illustrates the three-fold menace posed to the national interest by those looking for quick profits at the expense of important defense equities:

• “Typically, corporate raiders strip resources from ‘over-funded’ pension plans, selling off assets held by such plans and partially replacing them with less valuable annuities — including ‘junk bonds.’

• Such an action exposes the employees to uncertainties and risks. Moreover, the government’s Pension Benefit Guaranteed Corporation could become exposed to obligations worth hundreds of millions of dollars. Such a situation is a formula for yet another taxpayer bailout of willfully mismanaged enterprises, not unlike that involved in the ongoing savings and loan fiasco. 
• “In their quest for quick cash, corporate raiders are wont to dismember the companies they acquire. Simmons has publicly expressed an intention to liquidate $1 billion of Lockheed’s holdings. The likely result of such an action would be severely to disrupt essential operations of the defense industry, possibly eliminating key capabilities altogether.

• “An especially attractive target for raiding takeover artists are research and development activities — investments in a company’s long-term competitiveness that tend to produce small profits, if any, in the short-run. Deemphasizing R&D is ill-advised in the commercial sector, a fact reflected in part by the worsening U.S. trade deficit. In the defense sector, however, its loss may jeopardize the qualitative edge upon which U.S. security has traditionally depended.”

In an article published today in the Los Angeles Times (a copy of which is attached), Gaffney encouraged stockholders in defense corporations like Lockheed to recognize the serious damage hostile takeovers of their companies would likely inflict, both on their own investment and on the national interest.