By Mike Stone

WASHINGTON (Reuters) -The U.S. Federal Trade Commission said on Tuesday it voted unanimously to sue to block arms maker Lockheed Martin’s proposed $4.4 billion purchase of rocket engine maker Aerojet Rocketdyne Holdings Inc over antitrust concerns.

Lockheed CEO Jim Taiclet said the company will review the FTC’s planned challenge, adding: “With the filing of the suit, we may elect to defend the lawsuit or terminate the merger agreement.” Lockheed is the No. 1 U.S. defense contractor by sales.

The deal, if it were allowed to go forward, could enable Lockheed to use its control of Aerojet to hurt other defense contractors while creating more consolidation in the industry, the FTC said. The agency did not immediately release its complaint.

If the deal ends up in court, it would be the first litigated defense merger challenge in decades, the agency said.

Aerojet’s shares were down 18% at $36.86 in midday trading on Tuesday. Lockheed’s offer valued Aerojet at $51 per share but the shares had been trading below the offer because of investor concerns over the FTC’s antitrust review.

The FTC, made up of two Democrats and two Republicans, voted 4-0 to challenge the deal.

“Without competitive pressure, Lockheed can jack up the price the U.S. government has to pay, while delivering lower quality and less innovation. We cannot afford to allow further concentration in markets critical to our national security and defense,” FTC Bureau of Competition Director Holly Vedova said in a statement.

If the deal fails because of opposition from antitrust enforcers, Lockheed would not pay a termination fee, according to a Lockheed spokesman.

The FTC said it would file a complaint in federal court in Washington to seek a preliminary injunction halting the deal. Mergers that are halted at this stage are generally terminated. If a court rules in favor of the merging companies, the FTC generally drops its parallel administrative complaint.

The deal has drawn criticism because it would give Lockheed a dominant position over solid fuel rocket motors – a vital piece of the U.S. missile industry. Missile maker Raytheon has been an outspoken opponent of the proposed deal.

The deal has attracted opposition in the U.S. Congress including from Democratic Senator Elizabeth Warren, who applauded the FTC’s action in a statement on Tuesday.

“After decades of mergers, the defense industry is left with a few giant firms that aim to buy up key suppliers and stomp out competition. I support the FTC taking aggressive action to oppose further corporate concentration in the defense industry that could threaten U.S. national security.”

Lockheed has said it accounted for 33% of Aerojet’s sales and the deal would reduce “fee-on-fee” costs for the Pentagon and the U.S. taxpayer.

Rocket motors like those made by Aerojet are used in everything from the homeland defensive missile system to Stinger missiles.

Aerojet develops and manufactures liquid and solid rocket propulsion, air-breathing hypersonic engines and electric power and propulsion for space, defense, civil and commercial applications. Its customers include the Pentagon, NASA, Boeing, Lockheed Martin, Raytheon Technologies and the United Launch Alliance.

(Reporting by Mike Stone in Washington with additional reporting by Diane BartzEditing by Jason Neely, David Goodman and Chris Reese)

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