TRW Agrees To Divest BDM Assets To Settle FTC Charges

In order to settle Federal Trade Commission charges, TRW Inc. has agreed to divest a portion of the systems engineering and technical assistance (SETA) operations of McLean, Virginia-based BDM International Inc. prior to completing the $942 million acquisition of the company. In its complaint, the FTC stated that TRW's acquisition of BDM would substantially lessen competition in the market for research, development, manufacture and sale of a Ballistic Missile Defense System.

TRW, headquartered in Cleveland, Ohio, and BDM are each involved in the Department of Defense's Ballistic Missile Defense program. The United Missile Defense Corporation, a joint venture including TRW, is one of two competitors for the Ballistic Missile Defense Organization's Lead Systems Integrator (LSI) contract. BDM is the Ballistic Missile Defense Organization's (BMDO) sole supplier of SETA services for the LSI program. In its capacity as SETA contractor for the LSI program, BDM is responsible 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 program's SETA contractor as well.

According to the FTC's complaint, 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 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 of the LSI contract by bidding less aggressively than it would otherwise. Second, if TRW assumes the role of the program's 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 would require 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 120 days from the date TRW consummates its proposed acquisition of BDM. The proposed consent order also states that this divestiture would be to an acquirer approved by the Commission and the Department of Defense. If TRW fails to divest the assets within 120 days from the date it consummates the proposed acquisition of BDM, a trustee may be appointed to accomplish the divestiture. In addition, TRW has agreed that until BDM's SETA services contract is divested, BDM's SETA services business would be operated independently of TRW. The proposed consent order also would require TRW to provide technical assistance to the acquirer for a period of one year, at the request of either the acquirer or the Ballistic Missile Defense Organization.

The consent order also would require TRW to provide the Commission a report of compliance with the divestiture provisions of the order within 30 days following the date the order becomes final, and every 30 days thereafter until TRW has completed the required divestiture.

The Commission vote to approve the consent order was 3-0, with Commissioner Mozelle W. Thompson and Commissioner Orson Swindle not participating. Commissioner Mary L. Azcuenaga said in her concurring statement, "[W]ith 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 [other concerns of the Department] could not have been addressed, as they apparently have been in other defense-related transactions . . . without inclusion of the Department of Defense as a necessary participant in a decision committed by statute to the Commission." Recognizing the need to consult with the defense agencies in assessing a proposed buyer for the BDM assets to be divested, she concluded, "I would have preferred . . . 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."

A summary of the proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, DC 20580.

NOTE: A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent order, and an analysis to aid public comment, as well as Commissioner Azcuenaga's statement, are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, DC 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 9810081)