UNITED STATES OF AMERICA In the Matter of Nortek, Inc., a corporation. Docket No. COMPLAINT The Federal Trade Commission ("Commission"), having reason to believe that Respondent, Nortek, Inc., a corporation subject to the jurisdiction of the Commission, through its wholly-owned subsidiary NTK Sub, Inc., has agreed to acquire all the outstanding shares of the capital stock of NuTone Inc., a corporation subject to the jurisdiction of the Commission, in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and that such acquisition, if consummated, would be in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows: I. DEFINITIONS 1. "Hard-Wired Residential Intercoms" means electrical devices installed in residences to provide audio-only room-to-room or room-to-entrance communication or monitoring functions through in-the-wall low voltage wiring, including, but not limited to, such devices that incorporate music features. II. RESPONDENT 2. Respondent Nortek, Inc. is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 50 Kennedy Plaza, Providence, Rhode Island 02903. In 1997, Respondent Nortek, Inc. had net sales of $1.13 billion. M & S Systems LP is a limited partnership organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 2861 Congressman Lane, Dallas, Texas 75220. Broan Mfg. Co., Inc. is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Wisconsin, with its principal place of business located at 926 W. State Street, Hartford, Wisconsin 53027. M & S Systems LP and Broan Mfg. Co., Inc. are wholly-owned subsidiaries of Nortek, Inc. 3. Respondent, through its wholly-owned subsidiaries M & S Systems LP and Broan Mfg. Co., Inc., is engaged in, among other things, the manufacture, production and sale of Hard-Wired Residential Intercoms. In 1997, Respondent’s total sales of these products were approximately $14 million. 4. Respondent is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. § 12, and is a corporation whose business is in or affects commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 44. III. THE ACQUIRED COMPANY 5. NuTone Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at Madison & Red Banks Roads, Cincinnati, Ohio 45227. In 1997, NuTone Inc.’s net sales were approximately $199 million. NuTone Inc. is a wholly-owned subsidiary of Williams Y&N Holdings, Inc., which is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 700 Nickerson Road, Marlborough, Massachusetts 01752. Williams Y&N Holdings, Inc. is a wholly-owned subsidiary of Williams U.S. Holdings Inc., which is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 700 Nickerson Road, Marlborough, Massachusetts 01752. Williams U.S. Holdings Inc. is a wholly-owned subsidiary of Williams PLC, which is a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom, with its office and principal place of business located at Pentagon House, Sir Frank Whittle Road, Derby DE2 4XA England. 6. NuTone Inc. is engaged in, among other things, the manufacture, production and sale of Hard-Wired Residential Intercoms. In 1997, NuTone Inc.’s total sales of these products were approximately $25 million. 7. NuTone Inc., Williams Y&N Holdings, Inc., Williams U.S. Holdings Inc., and Williams PLC are, and at all times relevant herein have been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. § 12, and are corporations whose business is in or affects commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 44. IV. THE ACQUISITION 8. On or about March 9, 1998, Williams Y&N Holdings, Inc. and NTK Sub, Inc. entered into a stock purchase and sale agreement whereby NTK Sub, Inc., a wholly-owned subsidiary of Respondent Nortek, Inc., agreed to acquire all of the outstanding shares of the capital stock of NuTone Inc. for approximately $242.5 million ("Acquisition"). V. THE RELEVANT MARKETS 9. The relevant line of commerce in which to analyze the effects of the Acquisition is the manufacture, production and sale of Hard-Wired Residential Intercoms. 10. The United States is the relevant geographic market in which to analyze the effects of the Acquisition in the relevant line of commerce. VI. STRUCTURE OF THE MARKET 11. The parties to the Acquisition are the two leading producers and suppliers of Hard-Wired Residential Intercoms in the United States. Respondent Nortek, Inc. has an approximately 31% share and NuTone Inc. has an approximately 56% share. The market for the manufacture, production and sale of Hard-Wired Residential Intercoms is very highly concentrated, whether measured by the Herfindahl-Hirschman Index ("HHI"), or the two-firm and four-firm concentration ratios. The two-firm concentration ratio is approximately 87%; the four- firm concentration ratio is approximately 98%; and the post-acquisition HHI would be over 7600. VII. CONDITIONS OF ENTRY 12. Entry into the market for the manufacture, production and sale of Hard-Wired Residential Intercoms would not be timely, likely, or sufficient to deter or counteract the adverse competitive effects described in Paragraph 13 because of, among other things, the difficulty of establishing a network of wholesale distributors, and gaining brand name recognition and customer acceptance. VIII. EFFECTS OF THE ACQUISITION 13. The effects of the Acquisition, if consummated, may be substantially to lessen competition or tend to create a monopoly in the relevant market in violation of 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, in the following ways, among others:
each of which increases the likelihood that the prices of Hard-Wired Residential Intercoms will increase, and that services and innovation will decline. IX. VIOLATIONS CHARGED 14. The Acquisition agreement described in Paragraph 8 constitutes a violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. 15. The Acquisition described in Paragraph 8, if consummated, would constitute a violation of 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. WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this day of , 1998, issues its Complaint against said Respondent. By the Commission. Donald S. Clark SEAL: ISSUED: |