[Federal Register Volume 63, Number 148 (Monday, August 3, 1998)]
[Notices]
[Pages 41258-41259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20656]


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FEDERAL TRADE COMMISSION

[File No. 981-0111]


Nortek, Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
compliant that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before October 2, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
Andrew Caverly, Federal Trade Commission, Boston Regional Office, 101 
Merrimac Street, Suite 810, Boston, MA 02114-4719. (617) 424-5960.

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 above-captioned 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. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations of the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for July 27, 1998), on the World Wide Web, at ``http://

[[Page 41259]]

www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the 
FTC Public Reference Room, Room H-130, Sixth Street and Pennsylvania 
Avenue, N.W., Washington, D.C. 20580, either in person or by calling 
(202) 326-3627. 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)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted for 
public comment an agreement containing a proposed Consent Order from 
Nortek, Inc. (``Nortek''), which is designed to remedy the 
anticompetitive effects resulting from Nortek's acquisition of NuTone 
Inc. (``NuTone''). Under the terms of the agreement, Nortek will be 
required to divest M & S Systems LP (``M & S''), its wholly-owned 
subsidiary, to a Commission-approved buyer.
    The agreement containing proposed Consent Order has been placed on 
the public record for sixty (60) days for receipt 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 agreement and proposed 
Consent Order or make final the proposed Order.
    On March 9, 1998, Williams Y&N Holdings, Inc., NuTone's parent 
company, and NTK Sub, Inc., a wholly-owned subsidiary of Nortek, 
entered into a stock purchase and sale agreement whereby NTK Sub, Inc. 
agreed to acquire all of the outstanding shares of the capital stock of 
NuTone for approximately $242.5 million. According to the draft of the 
complaint that the Commission intends to issue, 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 manufacture and sale of 
hard-wired residential intercoms.
    Hard-wired residential intercoms are electrical devices that are 
installed in residences to provide room-to-room or room-to-entrance 
audio communication or monitoring functions through in-the-wall low 
voltage wiring. These intercoms often have the capability to provide 
background music from built-in AM/FM radios and/or cassette and CD 
players. In the United States hard-wired residential intercoms market, 
NuTone is the leading seller with about 56% of all sales, and Nortek, 
through its wholly-owned subsidiaries, M & S and Broan Mfg. Co. Inc., 
is the second largest competitor with about 31% of sales. Together, the 
merged firm would control approximately 87% of all U.S. hard-wired 
residential intercom sales. The proposed merger would increase the 
Herfindahl-Hirschmann Index (``HHI''), the customary measure of 
industry concentration, by over 3400 points and produce a market 
concentration of over 7600 points. By eliminating competition between 
the top two competitors in this highly concentrated market, the 
acquisition would allow Nortek to unilaterally exercise market power, 
thereby increasing the likelihood that prices of hard-wired residential 
intercoms will increase and that services and innovation will decline.
    It is unlikely that the competition eliminated by the proposed 
acquisition would be replaced by new entry into the U.S. hard-wired 
residential intercoms market or by expansion of sales by the remaining 
small competitors. A new entrant would need to undertake the difficult, 
expensive and time-consuming process of developing and marketing a 
competitive product, creating brand recognition among consumers, 
wholesalers and installers and establishing a viable distribution 
network. Because of the expense and difficulty of accomplishing these 
tasks, new entry into the U.S. hard-wired residential intercoms market 
is not likely to occur even if the merged firm were to increase prices 
significantly after the merger. Likewise, the remaining small 
competitors would not be in a position to replace the competition 
eliminated by the merger because of the difficulty they would have in 
expanding their sales.
    The proposed Consent Order requires that Nortek divest its M & S 
subsidiary to a third party approved by the Commission. The assets to 
be divested, in addition to hard-wired residential intercom assets, 
also include all assets relating to the M & S central vacuum and 
wholehouse stereo products. The purpose of this is to ensure the 
continued viability of the M & S business and to maintain its presence 
in the channels of product distribution.
    The divestiture is required to be completed within six months after 
Nortek signs the Consent Order. If Nortek fails to divest M & S within 
the six month period, the Commission may appoint a trustee to 
accomplish the divestiture. An Agreement to Hold Separate signed by 
Nortek and M & S requires that they preserve and maintain the 
competitive viability of all of the assets to be divested in order to 
ensure that the competitive value of these assets will be maintained, 
and provides further that until the required divestiture is completed, 
M & S will be operated separately from Nortek. To further ensure the 
competitive viability of the assets, the proposed Consent Order also 
requires Nortek to provide technical assistance to the acquirer, at the 
acquirer's request, for up to one year following the divestiture.
    By accepting the proposed consent order, the Commission anticipates 
that the competitive problems alleged in the draft complaint will be 
resolved. The purpose of this analysis is to facilitate public comment 
on the proposed Order. It is not intended to constitute an official 
interpretation of the agreement and proposed Order or to modify in any 
way their terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-20656 Filed 7-31-98; 8:45 am]
BILLING CODE 6750-01-M