JUMBO DEFENSE MERGER HALTED; LOCKHEED CALLS OFF NORTHROP DEAL.

Byline: Daily News Staff and Wire

Defense giant Lockheed Martin called off its $8.3 billion deal to buy Los Angeles-based Northrop Grumman Corp. Thursday because of government opposition.

It was the biggest merger proposal ever challenged by the federal government.

The announcement came just hours after the Pentagon said that it was unable to work out an agreement with Lockheed Martin to modify the deal and that it would press on with a lawsuit it filed in March to block the merger.

``Continuing the litigation at this point is simply not in the best interests of Lockheed Martin's customers, shareholders or employees,'' Vance Coffman, Lockheed Martin chairman and chief executive, said in a statement. He said it was ``regrettable'' that the merger did not go through, but he added that the two companies plan to continue cooperating.

The Pentagon and Justice Department had argued that the combination of the two aerospace giants would reduce competition in areas such as electronics and missile warning systems. The case had been scheduled to go to trial Sept. 8.

``We welcome this decision to abandon the transaction,'' said Joel I. Klein, assistant attorney general for antitrust. ``This means that the United States government and the American people will continue to receive the highest possible quality of military products and services in the defense of this nation, at the lowest possible cost to the American taxpayer.''

The decision by Lockheed Martin to abandon the deal brings to a halt the rapid consolidation that has taken place in the defense industry since the end of the Cold War led to a drop in military spending.

The deal, announced in July 1997, would have combined what had been five independent companies just three years ago, and would have solidified Lockheed Martin's position as the nation's largest defense contractor. The combined company would have accounted for 25 percent of the Pentagon budget.

Northrop employs about 425 people at its corporate offices in Century City out of 15,000 on its payroll in Los Angeles, Ventura, Orange and San Diego counties. The defense and aerospace company has a total of 51,000 workers.

Northrop's main facilities are in Hawthorne, Palmdale and Pico Rivera.

Lockheed Martin's presence in the Southland includes the Skunk Works plant in Palmdale that employs 4,500 and a facility in Ontario.

In a statement, Kent Kresa, Northrop Grumman president and chief executive, said: ``While we believed the merger was in the best interests of our constituencies, Northrop Grumman can and will continue as a strong, independent competitor in the aerospace marketplace.''

The failure of the proposed Lockheed-Northrop union marks the end of the era of mega-mergers in the defense and aerospace industry in North America, said Jerry Weltsch, an analyst for the California consulting firm Frost & Sullivan.

``There's been a sealing of the consolidation issue on the top level,'' Weltsch said.

Now smaller companies such as Raytheon Aerospace and TRW will try to diversify by acquiring smaller companies, Weltsch said.