[Federal Register Volume 61, Number 38 (Monday, February 26, 1996)]
[Notices]
[Pages 7105-7110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4186]
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FEDERAL TRADE COMMISSION
[File No. 961 0022]
Litton Industries, Inc.; Consent Agreement With Analysis to Aid
Public Comment
AGENCY: Federal Trade Commission.
ACTION: Consent agreement.
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SUMMARY: This Consent Agreement, accepted subject to final Commission
approval, settles alleged violations of federal law prohibiting unfair
or deceptive acts or practices and unfair methods of competition
arising from Litton's proposed acquisition of all of the voting
securities of PRC Inc., in a transaction valued at approximately $425
million. The proposed complaint alleges that the acquisition, if
consummated, would violate Section 7 of the Clayton Act, as amended,
and Section 5 of the Federal Trade Commission Act, as amended, in the
market for the research, development, manufacture and sale of Aegis
destroyers for the United States Department of the Navy. The proposed
consent order would, among other things, require Litton to divest all
of the assets relating to the provision of systems engineering and
technical assistance services (``SETA Services'') in support of the
U.S. Department of the Navy's Aegis destroyer program. In addition,
Litton has signed an Interim Agreement providing that the terms of the
Consent Agreement will become effective immediately.
DATES: Comments must be received on or before April 26, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room H-159, Sixth Street and Pennsylvania Avenue, NW., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT:
Ann B. Malester, FTC/S-2308, Washington, DC 20580 (202) 326-2682.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the following consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of sixty (60) days. Public comment is invited. Such
comments or views will be considered by the Commission and will be
available for inspection and copying at its principal office in
accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of
Practice (16 CFR 4.9(b)(6)(ii)).
In the Matter of: Litton Industries, Inc., a corporation. File
No. 961-0022.
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation of the proposed acquisition by Litton Industries, Inc.
(``Litton'') of PRC Inc. (``PRC''), and it now appearing that Litton,
hereinafter sometimes referred to as ``Proposed Respondent,'' is
willing to enter into an agreement containing an order to divest
certain assets, and providing for certain other relief:
It is hereby agreed by and between Proposed Respondent Litton, by
its duly authorized officers and attorneys, and counsel for the
Commission that:
1. Proposed Respondent Litton is a corporation organized, existing,
and doing business under and by virtue of the laws of the state of
Delaware with its principal executive offices located at 21240 Burbank
Boulevard, Woodland Hills, California, 91367-6675.
2. Proposed Respondent admits all the jurisdictional facts set
forth in the draft of complaint here attached.
3. Proposed Respondent waives:
a. any further procedural steps;
b. the requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. all rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
d. any claims under the Equal Access to Justice Act.
4. Proposed Respondent shall submit, within thirty (30) days of the
date this Agreement is signed by Proposed Respondent, an initial
compliance report, as contemplated by Rules 2.33 and 4.9(b)(7) of the
Commission's Rules of Practice and Procedure, 16 CFR 2.33 and
4.9(b)(7), duly signed by the Proposed Respondent, setting forth in
precise detail the manner in which Proposed Respondent will comply with
Paragraphs II and III of the proposed consent order, when and if
entered. Among other things, the report shall include a full and
complete description of the efforts planned or underway to comply with
the terms and conditions of the proposed order, including:
(1) a list of the firms to which Proposed Respondent (i) has
offered, and (ii) intends to offer, the SETA Services Operations;
(2) the actions, procedures and directives Litton will employ to
comply with Paragraphs II.G., II.H., II.I., and III of the proposed
consent order.
5. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the Proposed Respondent, in which event
it will take such action as it may consider appropriate, or issue and
serve its complaint (in such form as the circumstances may require) and
decision, in disposition of the proceeding.
6. This agreement is for settlement purposes only and does not
constitute an admission by Proposed Respondent that the law has been
violated as alleged in the draft of complaint here attached, or that
the facts as alleged in the draft complaint, other than jurisdictional
facts, are true.
7. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Section 2.34 of the
Commission's Rules, the Commission may, without further notice to
Proposed Respondent, (1) issue its complaint corresponding in form and
substance with the draft of complaint here attached and its decision
containing the following order to divest in disposition of the
proceeding, and (2) make information public with respect thereto. When
so entered, the order shall have the same force and effect and may be
altered, modified, or set aside in the same manner and within the same
time provided by statute for other orders. The order shall become final
upon service. Delivery by the U.S. Postal Service of the complaint and
decision containing the agreed-to order to Proposed Respondent shall
constitute service. Proposed Respondent waives any right it may have to
any other manner of service. The complaint may be used in construing
the terms of the order, and no agreement, understanding,
representation, or interpretation not contained in the order or the
agreement may be used to vary or contradict the terms of the order.
[[Page 7106]]
8. Proposed Respondent has read the proposed complaint and order
contemplated hereby. Proposed Respondent understands that once the
order has been issued, it will be required to file one or more
compliance reports showing that it has fully complied with the order.
Proposed Respondent further understands it may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final. By signing this Agreement, Proposed Respondent
represents that the relief contemplated by this Agreement can be
accomplished.
Order
I
It is ordered that, as used in this order, the following
definitions shall apply:
A. ``Respondent'' or ``Litton'' means Litton Industries, Inc., its
directors, officers, employees, agents and representatives,
predecessors, successors and assigns; its subsidiaries, divisions,
groups and affiliates controlled by Litton, and their respective
directors, officers, employees, agents and representatives, successors,
and assigns.
B. ``Ingalls'' means Ingalls Shipbuilding, Inc., a subsidiary of
Litton, with its principal place of business at 100 W. River Road,
Pascagoula, Mississippi, 39568-0149, which is engaged in, among other
things, the research, development, manufacture and sale of Aegis
destroyers to the United States Department of the Navy, and its
subsidiaries, divisions, groups and affiliates controlled by Ingalls,
and their respective directors, officers, employees, agents and
representatives, successors and assigns.
C. ``Bath Iron Works'' means Bath Iron Works Corporation, a
subsidiary of General Dynamics Corporation, with its principal place of
business at 700 Washington Street, Bath, Maine, 04530, which is engaged
in, among other things, the research, development, manufacture and sale
of Aegis destroyers to the United States Department of the Navy, and
its subsidiaries, divisions, groups and affiliates controlled by Bath
Iron Works, and their respective directors, officers, employees, agents
and representatives, successors and assigns.
D. ``PRC'' means PRC Inc., a Delaware corporation with its
principal place of business at 1500 Planning Research Boulevard,
McLean, Virginia, 22102, which is engaged in, among other things, the
provision of SETA Services to the United States Department of the Navy
in support of the Aegis destroyer shipbuilding program, its directors,
officers, employees, agents and representatives, predecessors,
successors and assigns; its subsidiaries, divisions, groups and
affiliates controlled by PRC, and their respective directors, officers,
employees, agents and representatives, successors, and assigns.
E. ``Commission'' means the Federal Trade Commission.
F. ``Acquisition'' means Litton's acquisition of all of the voting
securities of PRC pursuant to a Stock Purchase Agreement dated December
13, 1995.
G. ``SETA Services Operations'' means all assets, properties,
business and goodwill, tangible and intangible, held by PRC and used in
the provision of SETA Services to the United States Department of the
Navy under contract N00024-94-C-6430, including, without limitation,
the following:
1. all rights, obligations and interests in contract N00024-94-C-
6430 between the Naval Sea Systems Command and PRC;
2. all customer lists, vendor lists, catalogs, sales promotion
literature, advertising materials, research materials, financial
information, technical information, management information and systems,
software, software licenses, inventions, trade secrets, intellectual
property, patents, technology, know-how, specifications, designs,
drawings, processes and quality control data;
3. all rights, title and interests in and to owned or leased real
property, together with appurtenances, licenses and permits;
4. all rights, title and interests in and to the contracts entered
into in the ordinary course of business with customers (together with
associated bid and performance bonds), suppliers, sales
representatives, distributors, agents, personal property lessors,
personal property lessees, licensors, licensees, consignors and
consignees;
5. all rights under warranties and guarantees, express or implied;
6. all books, records, and files;
7. all data developed, prepared, received, stored or maintained
under contract N00024-94-C-6430 or any predecessor contract or
subcontract to support the Aegis shipbuilding program, including the
Aegis technical library; and
8. all items of prepaid expense.
H. ``SETA Services'' means systems engineering and technical
assistance services provided by PRC to the United States Department of
the Navy in support of the Aegis destroyer shipbuilding program.
I. ``Non-public Aegis Information'' means any information not in
the public domain furnished by Ingalls or Bath Iron Works or any other
company to PRC in its capacity as provider of SETA Services under
contract N00024-94-C-6430 and any predecessor contract.
II
It is further ordered That:
A. Litton shall divest, absolutely and in good faith, within ninety
(90) days of the date Litton signs this order, the SETA Services
Operations, and shall also divest such additional ancillary PRC assets
as are necessary to assure the continued ability of the acquirer to
provide SETA Services.
B. Litton shall divest the SETA Services Operations only to an
acquirer that receives the prior approval of the Commission and of the
United States Department of the Navy, and only in a manner that
receives the prior approval of the Commission. The purpose of the
divestiture is to ensure the continued provision of SETA Services in
the same manner as provided by PRC at the time of the proposed
divestiture, at no increased cost to the United States Department of
the Navy, and to remedy the lessening of competition alleged in the
Commission's complaint.
C. Pending divestiture of the SETA Services Operations, Litton
shall take such actions as are necessary to ensure the continued
provision of SETA Services, and to maintain the viability and
marketability of the assets used to provide SETA Services, and to
prevent the destruction, removal, wasting, deterioration or impairment
of the assets used to provide SETA Services, and to prevent the
disclosure of Non-public Aegis Information.
D. Upon reasonable notice from the acquirer or from the United
States Department of the Navy to respondent, respondent shall provide
such technical assistance to the acquirer as is reasonably necessary to
enable the acquirer to provide SETA Services in substantially the same
manner and quality as provided by PRC prior to divestiture. Such
assistance shall include reasonable consultation with knowledgeable
employees and training at the acquirer's facility for a period of time
sufficient to satisfy the acquirer's management that its personnel are
appropriately trained in the skills necessary to perform the SETA
Services Operations. Respondent shall convey all know-how necessary to
perform the SETA Services Operations in substantially the same manner
and quality employed or achieved by PRC
[[Page 7107]]
prior to divestiture. However, respondent shall not be required to
continue providing such assistance for more than one (1) year from the
date of the divestiture. Respondent shall charge the acquirer at a rate
no more than its own costs for providing such technical assistance.
E. At the time of the execution of a purchase agreement between
Litton and a proposed acquirer of the SETA Services Operations, Litton
shall provide the acquirer with a complete list of all current full-
time, non-clerical, salaried employees of PRC engaged in the provision
of SETA Services on the date of the purchase agreement. Such list shall
state each such individual's name, position, address, telephone number,
and a description of the duties of and work performed by the individual
in connection with the SETA Services Operations.
F. Litton shall provide the proposed acquirer with an opportunity
to inspect the personnel files and other documentation relating to the
individuals identified in Paragraph II.E. of this order to the extent
permissible under applicable laws. For a period of six (6) months
following the divestiture, Litton shall further provide the acquirer
with an opportunity to interview such individuals and negotiate
employment contracts with them.
G. Litton shall provide all current employees identified in
Paragraph II.E. of this order with financial incentives to continue in
their employment positions pending divestiture of the SETA Services
Operations, and to accept employment with the acquirer at the time of
the divestiture. Such incentives shall include continuation of all
employee benefits offered by Litton until the date of the divestiture,
and vesting of all pension benefits.
H. For a period of two (2) years commencing on the date of the
individual's employment by the acquirer, Litton shall not rehire any of
the individuals identified in Paragraph II.E. of this order who accept
employment with the acquirer.
I. Prior to divestiture, Litton shall not transfer any of the
individuals identified in Paragraph II.E. of this order whose
employment responsibilities involve access to Non-public Aegis
Information from SETA Services Operations to any other positions.
III
It is further ordered That:
A. Respondent shall not, absent the prior written consent of the
proprietor of Non-Public Aegis Information, provide, disclose, or
otherwise make available to Ingalls or any other entity any Non-Public
Aegis Information.
B. PRC shall use any Non-Public Aegis Information only in its
capacity as provider of technical assistance to the acquirer, pursuant
to Paragraph II.D. of this Order, unless PRC obtains the prior written
consent of the proprietor of the Non-Public Aegis Information.
IV
It is further ordered That:
A. If Litton has not divested, absolutely and in good faith, and
with the prior approval of the Commission and the United States
Department of the Navy, the SETA Services Operations within ninety (90)
days of the date Litton signs this order, the Commission may appoint a
trustee to divest the SETA Services Operations. In the event that the
Commission or the Attorney General brings an action pursuant to section
5(l) of the Federal Trade Commission Act, 15 U.S.C. 45(l), or any other
statute enforced by the Commission, Litton shall consent to the
appointment of a trustee in such action. Neither the appointment of a
trustee nor a decision not to appoint a trustee under this Paragraph IV
shall preclude the Commission or the Attorney General from seeking
civil penalties or any other relief available to it, including a court-
appointed trustee, pursuant to section 5(l) of the Federal Trade
Commission Act, or any other statute enforced by the Commission, for
any failure by Litton to comply with this order.
B. If a trustee is appointed by the Commission or a court pursuant
to Paragraph IV.A., Litton shall consent to the following terms and
conditions regarding the trustee's powers, duties, authority, and
responsibilities:
1. The Commission shall select the trustee, subject to the consent
of Litton, which consent shall not be unreasonably withheld. The
trustee shall be a person with experience and expertise in acquisitions
and divestitures. If Litton has not opposed, in writing, including the
reasons for opposing, the selection of any proposed trustee within ten
(10) days after notice by the staff of the Commission to Litton of the
identity of any proposed trustee, Litton shall be deemed to have
consented to the selection of the proposed trustee.
2. Subject to the prior approval of the Commission, the trustee
shall have the exclusive power and authority to divest the SETA
Services Operations.
3. Within ten (10) days after appointment of the trustee, Litton
shall execute a trust agreement that, subject to the prior approval of
the Commission and, in the case of a court-appointed trustee, of the
court, transfers to the trustee all rights and powers necessary to
permit the trustee to effect the divestiture required by this order.
4. The trustee shall have twelve (12) months from the date the
Commission approves the trust agreement described in Paragraph IV.B.3.
to accomplish the divestiture, which shall be subject to the prior
approval of the Commission and of the United States Department of the
Navy. If, however, at the end of the twelve month period, the trustee
has submitted a plan of divestiture or believes that divestiture can be
achieved within a reasonable time, the divestiture period may be
extended by the Commission, or, in the case of a court-appointed
trustee, by the court; provided, however, the Commission may extend
this period only two (2) times.
5. The trustee shall have full and complete access to the
personnel, books, records and facilities related to the SETA Services
Operations, or to any other relevant information, as the trustee may
request. Litton shall develop such financial or other information as
the trustee may request and shall cooperate with the trustee. Litton
shall take no action to interfere with or impede the trustee's
accomplishment of the divestiture. Any delays in divestiture caused by
Litton shall extend the time for divestiture under this Paragraph in an
amount equal to the delay, as determined by the Commission or, for a
court-appointed trustee, by the court.
6. The trustee shall use his or her best efforts to negotiate the
most favorable price and terms available in each contract that is
submitted to the Commission and to the United States Department of the
Navy, subject to Litton's absolute and unconditional obligation to
divest at no minimum price. The divestiture shall be made in the manner
and to the acquirer as set out in Paragraph II of this order, provided,
however, if the trustee receives bona fide offers from more than one
acquiring entity, and if the Commission and the United States
Department of the Navy determine to approve more than one such
acquiring entity, the trustee shall divest the SETA Services Operations
to the acquiring entity or entities selected by Litton from among those
approved by the Commission and the United States Department of the
Navy.
7. The trustee shall serve at the cost and expense of Litton,
without bond or other security unless paid for by Litton, on such
reasonable and customary terms and conditions as the Commission or a
count may set. The trustee shall have
[[Page 7108]]
the authority to employ, at the cost and expense of Litton, such
consultants, accountants, attorneys, investment bankers, business
brokers, appraisers, and other representatives and assistants as are
necessary to carry out the trustee's duties and responsibilities. The
trustee shall account for all monies derived from the divestiture and
all expenses incurred. After approval by the Commission and, in the
case of a court-appointed trustee, by the court, of the account of the
trustee, including fees for his or her services, all remaining monies
shall be paid at the direction of Litton, and the trustee's power shall
be terminated. The trustee's compensation shall be based at least in
significant part on a commission arrangement contingent on the
trustee's divesting the SETA Services Operations.
8. Litton shall indemnify the trustee and hold the trustee harmless
against any losses, claims, damages, liabilities, or expenses arising
out of, or in connection with, the performance of the trustee's duties,
including all reasonable fees of counsel and other expenses incurred in
connection with the preparation for, or defense of any claim, whether
or not resulting in any liability, except to the extent that such
liabilities, losses, damages, claims, or expenses result from
misfeasance, gross negligence, willful or wanton acts, or bad faith by
the trustee.
9. If the trustee ceases to act or fails to act diligently, a
substitute trustee shall be appointed in the same manner as provided in
Paragraph IV.A. of this order.
10. The Commission or, in the case of a court-appointed trustee,
the court, may on its own initiative or at the request of the trustee
issue such additional orders or directions as may be necessary or
appropriate to accomplish the divestiture required by this order.
11. The trustee shall have no obligation or authority to operate or
maintain the SETA Services Operations.
12. The trustee shall also divest such additional ancillary assets
and businesses and effect such arrangements as are necessary to assure
the marketability, viability and competitiveness of the SETA Services
Operations.
13. The trustee shall report in writing to Litton and the
Commission every sixty (60) days concerning the trustee's efforts to
accomplish divestiture.
V
It is further ordered That Respondents shall comply with all terms
of the Interim Agreement, attached to this order and made a part hereof
as Appendix I. Said Interim Agreement shall continue in effect until
the provisions in Paragraphs II and III are complied with or until such
other time as is stated in said Interim Agreement.
VI
It is further ordered That within thirty (30) days after the date
this order becomes final and every thirty (30) days thereafter until
Litton has fully complied with Paragraph II and IV of this order,
Litton shall submit to the Commission a verified written report setting
forth in detail the manner and form in which it intends to comply, is
complying, and has complied with Paragraphs II and IV of this order.
Litton shall include in its compliance reports, among other things that
are required from time to time, a full description of the efforts being
made to comply with Paragraphs II and IV including a description of all
substantive contacts or negotiations for the divestiture required by
this order, including the identity of all parties contacted. Litton
shall include in its compliance reports copies of all written
communications to and from such parties, all internal memoranda, and
all reports and recommendations concerning the divestiture.
VII
It is further ordered That, for the purpose of determining or
securing compliance with this order, Litton shall permit any duly
authorized representatives of the Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of Litton, relating to any matters contained in this order;
and
B. Upon five (5) days' notice to Litton, and without restraint or
interference from Litton, to interview officers, directors, or
employees of Litton, who may have counsel present, regarding any such
matters.
VIII
It is further ordered That until Litton has completed all of its
obligations under this order, Litton shall notify the Commission at
least thirty (30) days prior to any proposed change in the Respondent
such as dissolution, assignment, sale resulting in the emergence of a
successor corporation, or the creation or dissolution of subsidiaries
or any other change in the corporation that may affect compliance
obligations arising out of the order.
IX
It is further ordered That, notwithstanding any other provision of
this Order, this Order shall terminate ten (10) years from the date
this Order becomes final.
Appendix I
In the Matter of: Litton Industries, Inc., a corporation. File
No. 961-0022.
Interim Agreement
This Interim Agreement is by and between Litton Industries, Inc.
(``Litton''), a corporation organized and existing under the laws of
the State of Delaware, and the Federal Trade Commission (the
``Commission''), an independent agency of the United States Government,
established under the Federal Trade Commission Act of 1914, 15 U.S.C.
41, et seq.
Premises
Whereas, Litton has proposed to acquire one hundred percent of the
voting securities of PRC Inc., a subsidiary of Black & Decker
Corporation; and
Whereas, the Commission is now investigating the proposed
acquisition to determine if it would violate any of the statutes the
Commission enforces; and
Whereas, if the Commission accepts the Agreement Containing Consent
Order (``Consent Agreement''), the Commission will place it on the
public record for a period of at least sixty (60) days and subsequently
may either withdraw such acceptance or issue and serve its Complaint
and decision in disposition of the proceeding pursuant to the
provisions of Section 2.34 of the Commission's Rules; and
Whereas, the Commission is concerned that if an understanding is
not reached, preserving competition during the period prior to the
final issuance of the Consent Agreement by the Commission (after the
60-day public notice period), there may be interim competitive harm and
divestiture or other relief resulting from a proceeding challenging the
legality of the proposed acquisition might not be possible, or might be
less than an effective remedy; and
Whereas, Litton entering into this Interim Agreement shall in no
way be construed as an admission by Litton that the proposed
acquisition constitutes a violation of any statute; and
Whereas, Litton understands that no act or transaction contemplated
by this Interim Agreement shall be deemed immune or exempt from the
provisions of the antitrust laws or the Federal Trade Commission Act by
reason of
[[Page 7109]]
anything contained in this Interim Agreement.
Now, Therefore, Litton agrees, upon the understanding that the
Commission has not yet determined whether the proposed acquisition will
be challenged, and in consideration of the Commission's agreement that,
at the time it accepts the Consent Agreement for public comment, it
will grant early termination of the Hart-Scott-Rodino waiting period,
as follows:
1. Litton agrees to execute and be bound by the terms of the Order
contained in the Consent Agreement, as if it were final, from the date
Litton signs the Consent Agreement.
2. Litton agrees to deliver, within three (3) days of the date the
Consent Agreement is accepted for public comment by the Commission, a
copy of the Consent Agreement and a copy of this Interim Agreement to
the United States Department of Defense and to General Dynamics
Corporation.
3. Litton agrees to submit, within thirty (30) days of the date the
Consent Agreement is signed by Litton, an initial report, pursuant to
Section 2.33 of the Commission's Rules, signed by Litton setting forth
in detail the manner in which Litton will comply with Paragraphs II and
III of the Consent Agreement.
4. Litton agrees that, from the date Litton signs the Consent
Agreement until the first of the dates listed in subparagraphs 4.a and
4.b, it will comply with the provisions of this Interim Agreement:
a. Ten (10) business days after the Commission withdraws its
acceptance of the Consent Agreement pursuant to the provisions of
Section 2.34 of the Commission's Rules;
b. The date the Commission finally issues its Complaint and its
Decision and Order.
5. Litton waives all rights to contest the validity of this Interim
Agreement.
6. For the purpose of determining or securing compliance with this
Interim Agreement, subject to any legally recognized privilege and
applicable United States Government national security requirements, and
upon written request, and on reasonable notice, to Litton made to its
principal office, Litton shall permit any duly authorized
representative or representatives of the Commission:
a. Access during the office hours of Litton and in the presence of
counsel to inspect and copy all books, ledgers, accounts,
correspondence, memoranda, and other records and documents in the
possession or under the control of Litton relating to compliance with
this Interim Agreement; and
b. Upon five (5) days' notice to Litton and without restraint or
interference from it, to interview officers, directors, or employees of
Litton, who may have counsel present, regarding any such matters.
7. This Interim Agreement shall not be binding until accepted by
the Commission.
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted subject
to final approval an agreement containing a proposed Consent Order from
Litton Industries, Inc. (``Litton''), under which Litton will be
required to divest all of the assets relating to the provision of
systems engineering and technical assistance services (``SETA
Services'') in support of the United States Department of the Navy's
Aegis destroyer program. In addition, Litton has signed an Interim
Agreement providing that the terms of the Consent Agreement will become
effective immediately.
The proposed Consent Order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
proposed Consent Order and the comments received, and will decide
whether it should withdraw from the proposed Consent Order or make
final the proposed Order.
Pursuant to a Stock Purchase Agreement dated December 13, 1995,
Litton proposed to acquire all of the voting securities of PRC Inc., in
a transaction valued at approximately $425 million. The proposed
Complaint alleges that the acquisition, if consummated, would violate
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5
of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, in the
market for the research, development, manufacture and sale of Aegis
destroyers for the United States Department of the Navy.
Litton is one of only two manufacturers of the Aegis destroyer, and
PRC is the Navy's sole supplier of SETA Services for the Aegis program.
In its capacity as SETA contractor for the Aegis program, PRC is
charged with the responsibility for, among other things, developing
technical and other specifications for Aegis destroyer procurements,
assessing bid and other proposals submitted by the two Aegis destroyer
manufacturers, and evaluating the cost and quality performance of the
two Aegis destroyer producers. If the proposed acquisition takes place,
Litton, one of the two Aegis destroyer manufacturers, would become the
Aegis SETA contractor as well.
The proposed acquisition of PRC by Litton raises antitrust concerns
in two areas. First, to perform the function of SETA contractor for the
Aegis program, it is necessary for PRC to obtain a great deal of highly
competitively sensitive information, including detailed cost data, from
the two Aegis destroyer manufacturers, Litton and General Dynamics. If
Litton acquires PRC, and thus becomes the SETA contractor, Litton will
have access to this information from its only Aegis destroyer
competitor, General Dynamics. Access to this information may enable
Litton to raise Aegis destroyer prices by bidding less aggressively
than it otherwise would. Second, if Litton assumes the role of Aegis
SETA contractor, it may be able to anticompetitively favor itself and
disfavor General Dynamics in a variety of ways, such as setting unfair
procurement specifications or submitting unfair performance
evaluations.
The proposed Consent Order requires Litton to divest PRC's SETA
contract for the Aegis program, and all of PRC's assets associated with
the performance of that contract, within ninety (90) days of the date
Litton signed the Consent Order. The proposed Consent Order states that
this divestiture shall be to an acquirer approved by the Commission and
the United States Department of the Navy. If Litton fails to divest the
assets within ninety (90) days, a trustee may be appointed to
accomplish the divestiture. The proposed Consent Order also requires
Litton to provide technical assistance to the acquirer for a period of
one (1) year, at the request of the United States Department of the
Navy or of the acquirer.
The Order also requires Litton to provide the Commission a report
of compliance with the divestiture provisions of the Order within
thirty (30) days following the date the Order becomes final, and every
thirty (30) days thereafter until Litton has completed the required
divestiture.
The purpose of this analysis is to facilitate the public comment on
the proposed Order, and it is not intended to constitute an official
interpretation of the agreement and proposed Order or to modify in any
way their terms.
[[Page 7110]]
By direction of the Commission.
Donald S. Clark,
Secretary.
Concurring Statement of Commissioner Mary L. Azcuenaga, Litton
Industries/PRC, File No. 961 0022
I agree with my colleagues that the consent agreement that the
Commission accepts today for purposes of soliciting public comment
properly addresses the anticompetitive implications of the proposed
transaction. I concur in the Commission's action except to the extent
that Paragraph II.B. of the proposed order makes the Department of the
Navy a participant with the Commission in giving antitrust approval to
any divestiture proposed under Paragraph II.A. of the order.
With due deference to the Department of Defense and in full
recognition that the Department of the Navy has the power to decide
with which firms it will contract for the provision of goods and
services vital to the national security, no persuasive argument has
been presented to suggest that the Navy has or should have a role in
deciding the competitive implications of a particular divestiture. In
addition, no showing has been made that this case is unique, that
national security issues or concerns relating to the integrity of the
AEGIS destroyer program, to the extent they may be affected by this
order, could not have been addressed, as they apparently have been in
other defense-related transactions,\1\ without inclusion of the
Department of the Navy as a necessary participant in a decision
committed by statute to the Commission.
\1\ See Lockheed Corporation, C-3576, decision and order (May 9,
1995); See also ARKLA, Inc., 112 F.T.C. 509 (1989).
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The need to obtain technical assistance in reviewing commercial
transactions in sophisticated markets is not uncommon. Nor should the
Commission forget that national security is the province of the
country's defense agencies. The Commission might well find it necessary
to consult with the Department of the Navy both to assess the viability
of a proposed buyer of the PRC assets to be divested and to ensure that
a proposed transaction is not inconsistent with national security. I
would have preferred, however, to accommodate that need in this case by
means other than making the Department of the Navy a partner with the
Commission in interpreting and applying a final order of the
Commission.
[FR Doc. 96-4186 Filed 2-23-96; 8:45 am]
BILLING CODE 6750-01-M