Mike Stone

WASHINGTON, (Reuters) – Lockheed Martin’s decision to exit its plan for Aerojet Rocketdyne engine maker acquisition has refocused investors. As pressure mounts on Lockheed management for improved performance, it is now more difficult for them to focus on the complex list of problems both companies are facing.

The shares of each Lockheed Martin Corp (NYSE:) & Aerojet Rocketdyne Holdingss (NYSE:) Inc both fell Monday, after Lockheed walked out of the deal.

Aerojet stated that it plans to bring value to shareholders through the advancement of hypersonics, strategic, tactical and nuclear missile defense systems. Lockheed stated that it would focus on the best use of capital and the greatest return on investment. This includes our commitment to returning value to shareholders.

Lockheed is facing serious problems and Jim Taiclet, the CEO of Lockheed, has lost the opportunity to increase share prices. He took over as CEO in June 2020 during a pandemic.

The October management reduction in sales forecasts for 2021 and 2022 resulted a 12% drop in share prices.

According to the weapons manufacturer, COVID-19 has hampered its supply chain. However, on October’s post-earnings conference call with analysts, Ron Epstein from Bank of America (NYSE) asked Taiclet if he was defending his leadership and asking, “Where is your company going?” Is there a vision for this company? It really does seem – and this might be unfair, but I find it a bit unreachable right now.

Analysts have stated that Lockheed’s plan to facilitate the “internet” of military devices has not been able to attract investors. Even worse is Lockheed’s F-35 stealth fighter jet. This could lead to a softer U.S. Air Force demand in the future. It accounts for about 25% of Lockheed’s total revenue.

Epstein stated Monday that the strategy of defense contractors must change. Epstein stated that if defense spending is increasing in low single digits while peer companies are doing the same, the market will not be satisfied.

Cai Vonrumohr from Cowen said Monday in a note that Lockheed may still be able to do mergers. “It is likely to seek small technological accelerators instead of larger transactions which might face more regulatory hurdles.” Von Rumohr suggested that the Bethesda (Maryland)-based company might increase its sharebuyback.

Aerojet is looking to improve its board of directors.

Warren Lichtenstein (Executive Chairman of Aerojet) launched a proxy battle to replace three directors on the board. He is determined to make sure the company can succeed even if the deal does not happen.

Aerojet filed on February 11 a countersuit against a Lichtenstein lawsuit, asking for a court appointment of a committee to respond to the proxy contest.