Date: 1996-06-19
Speaker: ELEANOR HILL (democrat)
Chamber: S

Inspector General. Department of Defense. Army Navy Drive. Arlington. VA. DEAR Ms. HILL: We are writing to ask you to examine the merger of the Lockheed and Martin Marietta Corporations and to determine its cost to the taxpayers. We think this merger needs scrutiny by your office. The "payout benefit plan" being given to executives and managers at Martin is truly beyond comprehension for most ordinary American citizens. Martin Marietta Chairman Norman Augustine. for example. will receive $8.2 million in cash and stock options as a result of the merger. Other top executives are set to receive huge sums. A total of $92.2 million will be dished out to about 460. quested our assessment of the facts surmanagers and executives under various rounding the merger of the Lockheed and plans. We understand that some of this Martin Marietta Corporations: Our response money will be taken out of the pockets of to each of your concerns and questions is hard working American taxpayers. presented in the enclosure. Since mid1992. there have been at least Under Section 818. Public Law 337. and imnine or ten major mergers or acquisitions in plementing regulations. restructuring costs the U.S. defense industry. Under current pol- associated with a business combination of icy. the amounts charged to current or fu- defense contractors may not be paid. absent ture defense contracts to cover the "restruc- a review of projected costs and savings returing" or merger costs could be building up sulting for the Department from that busito unacceptable levels. What are the govern- ness combination. We understand that Lockments total potential liabilities from all re- heed Martin Corporation plans to submit a cent mergers? What is the rationale for giv- proposal containing such information by late ing defense companies tax money to cover June 1995. That proposal will be audited by the costs of their mergers? To us. mergers the Defense Contract Audit Agency and the mean less competition. and less competition results assessed by the Defense Contract usually means higher prices. Management Command to determine the Furthermore. we understand that there is amount of restructuring costs that properly a lack of clear guidance in regulation and may be reimbursed by the Government. In law governing mergers as to what is allow- the interim. those agencies will review the able and what is not allowable. This situa- companies requests for payments to assure tion could leave the door wide open for that the Government is not being improperly waste. abuse and excessive cash payments to billed. industry executives. Because the Defense Contract Audit AgenIn line with our more general concerns. we cy and the General Accounting Officer will have eleven more specific questions on the be examining the costs associated with the Martin/Lockheed merger: business combination. we do not plan to iniIs there any evidencebased on recent ex- tiate a review of the matter. We will. howperienceto suggest that the merger will ever. closely monitor the audit by the Degenerate real savings to the taxpayers? fense Contract Audit Agency and actions by If so. what are the total expected savings the Defense Contract Management Cointo the taxpayers from the merger? mand. Let me assure you that I share your What is the total projected cost of the concern that the Lockheed and Martin Marlmerger to ihe taxpayers. including potential etta business combination not result in the reimbursements for closing unneeded facili- payment of unallowable or excessive costs by ties? the Government. How exactly would tax dollars be used to A similar reply is being provided to Sencompensate the two firms for the cost of the ator Boxer. If we may be of further assistmerger? ance. please contact me or Mr. John R. To what extent are tax dollars being used Crane. Office of Congressional Liaison. at to support the executive compensation plan 6048324. resulting from the mergerparticularly the Sincerely. one contained in a joint proxy statement for ELEANOR HILL. the meeting held on March 15. 1995? Inspector General. If tax money is used to finance the executive "payout" operation. please provide the RESPONSE TO COMMENTS AND QUESTIONS REname of each person receiving tax money GARDING THE MERGER OF LOCKHEED AND and the total amount each person is to re- MARTIN MARIETTA CORPORTIONS ceive. What is the legal basis for using tax money General Comments: A total of $92.2 million to make such payments? will be dished out to about 460 managers and Will projected costs and savings be sub- executives under various plans. jected to adequate audit verification? Of the $92.2 million. the Lockheed Martin Does the merger plan comply with Section Corporation believes that $31 million are al818 of Public Law 103337 and Section 8117 of lowable costs that can be charged to GovernPublic Law 103335? ment contracts. The Defense Contract Audit Does the April 15. 1995 deadline specified in Agency is currently auditing the $31 million. Section 8117 mean that the Martin/Lockheed The audit is scheduled to be completed by merger is not covered by this provision? June 30. 1995.Have antitrust issues been adequately ad- What are the Governments total potential dressed? liabilities from all recent mergers? Ms. Hill. as far as we are concerned. the The Department of Defense (DoD) may pay salaries paid to top executives in industry allowable and allocable restructuring costs should be determined in the market place- resulting from a business combination pronot by some obscure act of Congress. But if vided under that audited proposals indicate money is taken out of the pockets of hard that overall savings to the Government will working American taxpayers to pay defense result. As only a few contractors have preindustry executive outrageous and unreason- sented restructuring proposals. the total poable salaries and bonuses. then we feel like tential costs and overall savings to the Govwe have an obligation to ask questions. ernment cannot be predicted at this time. We look forward to your independent as- What is the rationale for giving defense sessment of the facts. companies tax money to cover the costs of Your continued support is always appre- their mergers? To us. merger means less ciated. competition. and less competition means Sincerely. higher prices.