The pending sale of a company that makes specialty valves used in America’s nuclear-powered submarines is raising concerns about consolidation in an already fragile sector of the defense industrial base.
The move comes as the U.S. and two of its closest allies clamor for more submarines, which they say are essential to keep pace with China.
“I’m concerned about this potential merger between two of America’s critical valve production companies,” Rep. Rob Wittman, R-Va., tweeted Wednesday. “At a time when we are expanding the submarine industrial base to meet future requirements, we need more information before deciding to support a valve consolidation proposal.”
Earlier this week, Circor International said it would sell itself to private equity firm KKR for $51 per share, rejecting a more lucrative $57 per share offer from another private equity firm, Arcline Investment Management, Reuters reported. Late Thursday, Circor said it had entered a definitive agreement with KKR, now for a higher $56 per share.
Arcline’s Fairbanks Morse Defense acquired Hunt Valve in 2021. Circor owns Portland Valve. But since Arcline offered more money, officials are worried Circor could change its mind and sell to them, thus consolidating the two valve companies under a single owner.
The submarine makers and their bespoke suppliers have been particularly stressed in recent years as they attempt to build two Virginia-class subs each year for the Navy. The pandemic threw a wrench in those efforts as companies have struggled to hire enough skilled welders, pipefitters and other specialists. Supply chain issues have also prompted the Biden administration to use the Defense Production Act to accelerate manufacturing of critical parts and meet the Navy’s demand.
The U.S. Navy is also buying new Columbia-class submarines, which carry nuclear missiles, to replace the aging Ohio-class. And the United States plans to sell three to five Virginia-class submarines to Australia in the coming years.
The valves made by Hunt and Portland are used to control the water flow into ballast tanks, which allow submarines to dive and surface, according to Mark Montgomery, a retired Navy rear admiral who is now a senior director and senior fellow at the Foundation for Defense of Democracies. The valves are also used in high-pressure air systems.
“We just have to be very careful here,” Montgomery said. “Do we have some kind of guarantee that both production lines will stay open—there will be no reduction in the STEM-qualified workforce associated with these workplaces?”
Any deal would be subject to a federal antitrust review.
“There’s … been a reckoning within the defense world about how wholesale consolidation of the defense industrial base is actually [leaving] us much less secure, and has serious national security implications,” Federal Trade Commission Chair Lina Khan said at a March conference.
When companies merge or are acquired, executives usually look for ways to be more efficient, which often leads to the elimination of redundant activities.
“Corporations don't get bonuses for wasting money, they get bonuses for saving money, and achieving efficiencies,” Montgomery said. “But the problem is one person's efficiency, there's another person's supply chain woe.”
The retired admiral pointed out that a fire at a U.S. black power factory in Louisiana has led to a shortage in the gunpowder used in military weapons.
“We know what happens when you get yourself down to one or two companies,” Montgomery. You create problems.”
Pending Sale Raises Fears of Consolidation Among Submarine Suppliers - Defense One
Read More
No comments:
Post a Comment