Arent Fox & Raytheon, A Story of Innovative Structures

    The challenge came repeatedly and earnestly from defense clients, Arent Fox partner Craig King recalls: “We need to find a way to combine with our fiercest competitor and work together so that we can both contribute what we do best.” Reduced government purchases and ever-increasing competition had caused some suppliers to exit the business. “To survive, these defense contractors needed to combine operations to keep the best of technologies, plants, and assets, preserve competition wherever possible, and also provide incentives for efficiency and cost savings.

    In response, Craig, formerly general counsel of the US Navy, devised innovative transactions that helped transform the defense industry.

    “First, Raytheon Corporation asked us to figure out a way to combine their missile operation with arch competitor, Hughes Aircraft, the only two suppliers of the Standard Missile. Raytheon and Hughes needed a structure that would enable them to work together in a way that the Navy and the antitrust authorities would agree achieved the efficiencies for the program that the Navy desired while keeping the best assts of both companies available to continue developing this important missile,” recalls Craig.

    The solution was the first-of-its-kind joint venture that allowed both companies to combine their operations. “Not only did the government approve the arrangement for them to share the business, but this collaboration contributed to the eventual merger of the two companies.”

    Craig quickly saw other opportunities to foster cooperation between competitors that benefited the government and its suppliers. He went to work on more than a dozen mergers and acquisitions of defense companies, and many joint ventures and other teaming arrangements. One notable example was Todd Shipyards, a publicly traded ship repair company in Seattle that was facing significant decreases in ship repair work. Craig and Arent Fox helped develop teaming arrangements that kept the work in the Puget Sound area, allowing sailors home-ported there to remain at home with their families during ship repairs. Todd received the contracts and shared the work with others. “The work got done, and for a fair price. Jobs were retained. The families were happy, and the Navy was happy,” said Craig.