Illinois Tool Works, Inc. based in Glenview, Illinois, has agreed to settle Federal Trade Commission charges that its proposed acquisition of Hobart Brothers Company could lead to higher prices for industrial power sources and industrial engine drives, both of which are used to generate power for arc welding systems used in a broad range of industries. The proposed settlement would permit Illinois Tool Works to acquire Hobart so long as it divested all of Hobart’s assets and businesses relating to industrial power sources and industrial engine drives to Prestolite Electric Incorporated, or to another Commission-approved acquirer. The divestiture is designed to maintain the current level of competition in these markets, the FTC said, and thereby reduce the risk of higher prices and reduced innovation as a result of the acquisition.
Illinois Tool Works is a multinational manufacturer of industrial products and systems. Hobart, based in Troy, Michigan, is a manufacturer of power conversion equipment and supplies for materials joining, surfacing, cutting, battery charging and aircraft ground power applications. Illinois Tool Works, through its Miller Group, and Hobart are the first and third leading manufacturers, respectively, of the power sources and engine drives in the United States.
“Hobart has been an aggressive competitor on the basis of price in the markets for both industrial power sources and industrial engine drives; allowing these businesses to be swallowed up by Illinois Tool Works - Hobart’s main rival - presents clear antitrust concerns,” said William J. Baer, Director of the FTC’s Bureau of Competition. “We challenged this part of the deal because it would have eliminated one of just a few of Illinois Tool Work’s principal competitors and would make it easier for the remaining firms to raise prices and keep them higher. The bottom line of this case is to ensure that the level of competition on price and innovation that was present before the acquisition will continue afterward.
“The relief in this case is particularly notable because the Commission and the parties were able to enter into an agreement requiring prompt divestiture, thereby assuring quick and complete restoration of competition,” Baer added.
In May 1995, Illinois Tool Works proposed to acquire all of the voting securities of Hobart. According to the FTC complaint detailing the charges in this case, it would be very difficult for a new firm to begin competing in the relevant markets because of the difficulties associated with establishing a distribution network, and in gaining brand name recognition and customer acceptance. New entry, therefore, would not deter the adverse competitive effects of the acquisition. Thus, the proposed acquisition would violate federal antitrust laws by:
- enhancing the likelihood of collusion between or among the remaining firms;
- eliminating direct actual competition between Illinois Tool Works and Hobart; and,
- increasing the likelihood of higher prices and reduced quality and innovation.
The Proposed Settlement
A proposed consent agreement to settle the FTC’s charges, announced today for a public comment period before the Commission determines whether to make it final, would permit Illinois Tool Works to acquire Hobart but require the company to divest all of Hobart’s assets and businesses relating to industrial power sources and industrial engine drives, including an exclusive five-year license of the Hobart trade name, to Prestolite Electric Incorporated, within one month after the Commission approves the agreement as final. In addition, under the settlement, Illinois Tool Works has agreed not to market industrial power sources and industrial engine drives under the Hobart name for seven years as well as provide the personnel, assistance and training necessary to transfer the industrial power source and industrial engine drive technology to Prestolite. Prestolite is based in Ann Arbor, Michigan.
If the Prestolite deal falls through, the settlement would give Illinois Tool Works one year to divest these assets to another FTC-approved acquirer. If the divestiture were not completed on time, the consent order would permit the FTC to appoint at trustee to complete it.
The Commission vote to accept the proposed consent agreement was 5-0.
The 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, D.C. 20580.
NOTE: A consent agreement 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 $10,000.
Copies of the complaint, the proposed consent agreement, and an analysis of the agreement to assist the public in commenting are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; 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 news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov
(FTC File No. 951 0091)