Nortek, Inc.; Analysis To Aid Public Comment

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