Litton Industries, Inc.; Consent Agreement With Analysis to Aid Public Comment

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