TRW Inc.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 981-0081]

TRW 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 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 complaint 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 March 13, 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:

William Baer, Federal Trade Commission, 6th & Pennsylvania Ave., NW, H-

374, Washington, DC 20580. (202) 326-2932. George S. Cary, Federal

Trade Commission, 6th & Pennsylvania Ave., NW, H-374, Washington, DC

20580. (202) 326-3741.

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 in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home page (for December 24,

1997), on the World Wide Web, at ``http://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 subject

to final approval an agreement containing a proposed Consent Order from

TRW Inc. (``TRW''), under which TRW will be required to divest all of

the assets relating to the provision of systems engineering and

technical assistance (``SETA'') services in support of the Department

of Defense's Ballistic Missile Defense Organization (``BMDO'').

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.

On November 20, 1997, TRW and BDM International Inc. (``BDM'')

entered into an Agreement and Plan of Merger whereby TRW will acquire

all of the issued and outstanding common shares of BDM for

approximately $942 million. The proposed Complaint alleges that the

acquisition, if consummated, would violate Section 7 of the Clayton

Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the Federal Trade

Commission Act, as amended, 15 U.S.C. Sec. 45, in the market for the

research, development, manufacture and sales of a Ballistic Missile

Defense System.

The United Missile Defense Corporation, a joint venture including

TRW, is one of only two competitors for the Ballistic Missile Defense

Organization's Lead Systems Integrator (``LSI'') contract, and BDM is

the Ballistic Missile Defense Organization's sole supplier of SETA

services for the LSI program. In its capacity as SETA contractor for

the LSI program, BDM is charged with the responsibility for, among

other things, developing technical and other specifications for the LSI

procurement, assessing bid and other proposals submitted by the two

competitors, and evaluating the cost and quality performance of the

winning bidder. If the proposed acquisition takes place, TRW, one of

the two LSI competitors, would become the LSI SETA contractor as well.

The proposed acquisition of BDM by TRW raises antitrust concerns in

two areas. First, to perform the function of SETA contractor for the

LSI program, it is necessary for BDM to obtain a great deal of highly

competitively sensitive information from the two LSI competitors. If

TRW acquires BDM, and thus becomes the SETA contractor, TRW will have

access to this information from its only LSI program competitor. Access

to this information may enable TRW to raise prices for the LSI contract

by bidding less aggressively than it otherwise would. Second, if TRW

assumes the role of LSI SETA contractor, it may be able to

anticompetitively favor itself and disfavor its competitor in a variety

of ways, such as setting unfair procurement specifications or

submitting unfair performance evaluations.

The proposed Consent Order requires TRW to divest BDM's SETA

services contract with the BMDO, including its SETA responsibilities

for the LSI program, and all of BDM's assets associated with the

performance of that contract, within one hundred and twenty (120) days

from the date TRW consummates its proposed acquisition of BDM. The

proposed Consent Order states that this divestiture shall be to an

acquirer approved by the Commission and the Department of Defense. If

TWR fails to divest the assets within one hundred and twenty (120) days

from the date it consummates the proposed acquisition of BDM, a trustee

may be appointed to accomplish the divestiture. An Agreement to Hold

Separate signed by TRW provides that until BDM's SETA services contract

is divested, BDM's SETA services business will be operated

independently of TRW. The proposed Consent Order also requires TRW to

provide technical assistance to the acquirer for a period of one (1)

year, at the request of either the acquirer or the Ballistic Missile

Defense Organization.

The Order also requires TRW to provide the Commission a report of

compliance with the divestiture

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provisions of the Order within thirty (30) days following the date the

Order becomes final, and every thirty (30) days thereafter until TRW

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.

Donald S. Clark,

Secretary.

Concurring Statement of Commissioner Mary L. Azcuenaga in TRW Inc./

BDM, File No. 981 0081

I agree with my colleagues that the final decision and order that

the Commission accepts today for 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 Defense a participant with

the Commission in giving antitrust approval to any divestiture proposed

under Paragraph II.A. of the order.

As I said in my concurring statement in Litton Industries, Inc./

PRC, File No. C-3656 (decision and order, May 7, 1996), with due

deference to the Department of Defense and in full recognition that it

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 Department

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 Ballistic Missile Defense Organization's Lead

Systems Integrator 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 Defense as a necessary participant in a decision

committed by statute to the Commission.

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\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 Defense both to assess the viability

of a proposed buyer of the BDM 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 Defense a partner with the

Commission in interpreting and applying a final order of the

Commission.

[FR Doc. 98-709 Filed 1-9-98; 8:45 am]

BILLING CODE 6750-01-M