[Federal Register Volume 83, Number 115 (Thursday, June 14, 2018)]
[Notices]
[Pages 27776-27778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12750]



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FEDERAL TRADE COMMISSION

[File No. 181 0005]


Northrop Grumman Corporation and Orbital ATK, 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 methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint 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 July 5, 2018.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write: ``In the Matter of 
Northrop Grumman Corporation and Orbital ATK, Inc., File No. 181 0005'' 
on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/northropgrumman by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``In the Matter of Northrop Grumman Corporation and 
Orbital ATK, Inc., File No. 181 0005'' on your comment and on the 
envelope, and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: James Southworth (202-326-2822), 
Bureau of Competition, 600 Pennsylvania Avenue NW, Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 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 thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for June 5, 2018), on the World Wide Web, at 
https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before July 5, 2018. 
Write ``In the Matter of Northrop Grumman Corporation and Orbital ATK, 
Inc., File No. 181 0005'' on your comment. Your comment--including your 
name and your state--will be placed on the public record of this 
proceeding, including, to the extent practicable, on the public 
Commission website, at https://www.ftc.gov/policy/public-comments.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/northropgrumman by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that website.
    If you prefer to file your comment on paper, write ``In the Matter 
of Northrop Grumman Corporation and Orbital ATK, Inc., File No. 181 
0005'' on your comment and on the envelope, and mail your comment to 
the following address: Federal Trade Commission, Office of the 
Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex D), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW, 5th Floor, Suite 5610 (Annex D), Washington, DC 
20024. If possible, submit your paper comment to the Commission by 
courier or overnight service.
    Because your comment will be placed on the publicly accessible FTC 
website at https://www.ftc.gov, you are solely responsible for making 
sure that your comment does not include any sensitive or confidential 
information. In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including in particular competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC website--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC website, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC website at http://www.ftc.gov to read this Notice and 
the news release describing it. The FTC Act and other laws that the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding, as appropriate. The Commission 
will consider all timely and responsive public comments that it 
receives on or before July 5, 2018. For information on the Commission's 
privacy policy, including routine uses permitted by the Privacy Act, 
see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted an 
Agreement Containing Consent Order (``Consent Agreement'') designed to 
remedy the anticompetitive effects resulting from Northrop Grumman 
Corporation's (``Northrop'') proposed acquisition of Orbital ATK, Inc. 
(``Orbital ATK''). Under the terms of the Consent Agreement, Northrop 
would be

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required to (1) continue to act as a non-discriminatory merchant 
supplier of Orbital ATK's solid rocket motors (``SRMs'') rather than 
favor its now-vertically integrated missile system business, and (2) 
protect SRM and missile system competitors' competitively sensitive 
information from improper use or disclosure.
    The Consent Agreement has been placed on the public record for 
thirty days for receipt of comments by interested persons. Given that 
the acquisition could impact a current ongoing missile system 
competition, the Commission issued the accompanying Decision and Order 
(``Order'') as final prior to seeking public comment, as provided in 
Section 2.34(c) of the Commission's Rules. This will allow the 
Commission to enforce the Order if there are any violations of its 
provisions during the public comment period. Comments received during 
this period will become part of the public record. After thirty days, 
the Commission will again review the proposed Consent Agreement and the 
comments received, and will decide whether it should withdraw from the 
Consent Agreement or modify the accompanying Order.
    Pursuant to an Agreement and Plan of Merger dated September 17, 
2017, Northrop agreed to acquire 100 percent of the issued and 
outstanding voting securities of Orbital ATK for approximately $7.8 
billion (the ``Acquisition''). The Commission's Complaint alleges that 
the Acquisition is in violation of Section 5 of the FTC Act, as 
amended, 15 U.S.C. 45, and 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 FTC Act, as amended, 15 U.S.C. 45, by lessening the 
competition in the United States market for missile systems. The 
Acquisition would provide Northrop with the ability and incentive to 
withhold its SRMs from competing missile system prime contractors, or 
only offer its SRMs at disadvantageous terms, thereby raising rivals' 
costs or otherwise undermining their ability to compete on future 
missile system bids. The Consent Agreement will remedy the alleged 
violations by prohibiting Northrop from discriminating against 
competing missile prime customers in supplying SRMs.

II. The Parties

    Northrop is a Delaware corporation with its principal place of 
business in Falls Church, Virginia. Northrop is a global aerospace and 
defense company that acts as a prime contractor or preferred supplier 
on many high-priority programs for the United States Department of 
Defense (``DOD'') and other United States Government agencies. Northrop 
is one of only a few companies capable of acting as a prime contractor 
for tactical, missile defense, and strategic missile systems for DOD 
[the United States Government]. From 1997 to 2013, Northrop was the 
prime contractor responsible for maintaining, sustaining, and 
modernizing the Minuteman III strategic missile system. Northrop is 
currently competing to develop the nation's next intercontinental 
ballistic missile system, the Ground Based Strategic Deterrent. 
Northrop has also successfully competed for United States Government 
research and development contracts for tactical missiles and missile 
defense interceptors.
    Orbital ATK is a Delaware corporation with its principal place of 
business in Dulles, Virginia. The company is a prime contractor and 
merchant supplier of space, defense, and aviation-related systems to 
customers around the world. Orbital ATK is the nation's leading 
producer of SRMs for both defense and commercial applications. For 
defense programs, Orbital ATK produces strategic-grade SRMs for the 
Trident II D-5 and Minuteman III and the Missile Defense Agency's 
Ground-based Midcourse Defense interceptor. In addition, Orbital ATK is 
a leading producer of SRMs for air-, sea- and land-based tactical 
missiles and missile defense interceptors. Orbital ATK supplies these 
SRMs to prime contractors for use in their missile systems.

III. The Products and Structure of the Markets

    Northrop is one of only four companies capable of supplying missile 
systems to the United States Government. Missile systems provide 
essential national defense capabilities for the United States 
Government. The United States Armed Forces employ multiple types of 
missile systems, including short-range tactical missiles, longer-range 
strategic missiles, and missile defense interceptors designed to defeat 
ballistic missile threats. Each type of missile system purchased by DOD 
has unique capabilities and is designed specifically to perform its 
given mission(s).
    Orbital ATK is one of only two viable suppliers of SRMs for U.S. 
Government missile systems and the dominant supplier of large SRMs used 
for long-range strategic missiles. SRMs are used to propel tactical, 
missile defense, and strategic missiles to their intended targets. SRMs 
are used for virtually all missile systems purchased by the United 
States Government because they offer numerous advantages over all other 
existing propulsion technologies.
    The relevant geographic market in which to analyze the effects of 
the proposed transaction is the United States. The missile systems that 
are the subject of the Complaint are solely purchased by the United 
States Government, which also typically funds their development. 
National security considerations and other factors limit DOD's ability 
to procure its missile systems from foreign suppliers. Federal law, 
national security, and other considerations similarly drive missile 
system prime contractors to procure SRMs from domestic suppliers.

IV. Entry

    Entry into the relevant markets would not be timely, likely, or 
sufficient in magnitude, character, and scope to deter or counteract 
the anticompetitive effects of the Acquisition. There are significant 
barriers to entry into the development, manufacture, and sale of both 
SRMs and missile systems in the United States. The relevant products 
are high technology, defense-specific products that require specialized 
expertise and facilities to develop, test, and manufacture. It would be 
extremely difficult and costly for a new entrant to establish the 
technological expertise and specialized facilities necessary to compete 
successfully in either of these markets.

V. Effects of the Acquisition

    Following the Acquisition, Northrop, will be one of only two viable 
suppliers of SRMs for U.S. Government missile systems. The choice of 
SRM can have a significant impact on the final determination of a 
missile system prime competition because the propulsion system is a 
critical element of the overall missile design. SRMs comprise a large 
portion of the cost of the integrated missile and their performance 
affects the range, accuracy, and payload capacity of the missile. 
Absent the protections of the Consent Agreement, Northrop would have 
the ability to disadvantage competitors for future missile prime 
contracts by denying or limiting their access to Northrop's SRM 
products and technologies, which would lessen the ability of Northrop's 
missile system competitors to compete successfully for a given missile 
system prime contract. The Acquisition would also give Northrop access, 
through the former Orbital ATK SRM business, to the proprietary 
information that rival missile prime contractors must share with its 
SRM vendor. Similarly, the Acquisition creates a risk that the

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proprietary, competitively sensitive information of a rival SRM 
supplier supporting Northrop's missile system business could be 
transferred to Northrop's vertically integrated SRM business.

VI. The Consent Agreement

    The Consent Agreement remedies the acquisition's likely 
anticompetitive effects by requiring, whenever Northrop competes for a 
missile system prime contract, that Northrop must make its SRM products 
and related services available on a non-discriminatory basis to all 
other third-party competing prime contractors that wish to purchase 
them. The non-discrimination prohibitions of the Consent Agreement are 
comprehensive and apply to any potential discriminatory conduct 
affecting price, schedule, quality, data, personnel, investment, 
technology, innovation, design, or risk.
    The Consent Agreement requires Northrop to establish firewalls to 
ensure that Northrop does not transfer or use any proprietary 
information that it receives from competing missile prime contractors 
or SRM suppliers in a manner that harms competition. These firewall 
provisions require that Northrop maintain separate firewalled teams to 
support offers of SRMs to different third-party missile prime 
contractors and to maintain these firewalled teams separate from the 
team supporting Northrop's missile prime contractor activities. The 
firewall provisions also prohibit Northrop's missile business from 
sharing proprietary information it may receive from third-party SRM 
suppliers with Northrop's SRM business.
    The Consent Agreement also provides that the DOD's Under Secretary 
of Defense for Acquisition and Sustainment shall appoint a compliance 
officer to oversee Northrop's compliance with the Order. The compliance 
officer will have all the necessary investigative powers to perform his 
or her duties, including the right to interview respondent's personnel, 
inspect respondent's facilities, and require respondents to provide 
documents, data, and other information. The compliance officer has the 
authority to retain third-party advisors, at the expense of Northrop, 
as appropriate to perform his or her duties. Access to these extensive 
resources will ensure that the compliance officer is fully capable of 
overseeing the implementation of, and compliance with, the Order.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Consent Agreement or to modify 
its terms in any way.

    By direction of the Commission.
Janice Frankle,
Acting Secretary.
[FR Doc. 2018-12750 Filed 6-13-18; 8:45 am]
 BILLING CODE 6750-01-P