[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).
---------------------------------------------------------------------------

    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