Valspar Corp's Acquisition of Lilly Industries Approved

Company Must Divest Certain Assets to Preserve Competition in Mirror Solutions and Mirror Backing Paint Markets

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The Federal Trade Commission today accepted a proposed consent agreement designed to remedy the anticompetitive effects resulting from Valspar Corporation's ("Valspar") acquisition of Lilly Industries, Inc. ("Lilly"). Valspar and Lilly are the two leading suppliers of silver, tin and copper solutions ("mirror solutions") in the United States and two of three suppliers of mirror backing paint in the United States. Mirror solutions and mirror backing paint are the coatings applied to the back of a piece of glass in order to produce a mirror. Under the terms of the agreement, Valspar would be required to divest its mirror coatings business to Spraylat Corporation within 10 days of the date the consent agreement is placed on the public record. Should Valspar fail to do so, the Commission may appoint a trustee to divest the mirror coatings business.

"This consent agreement will restore competition in markets vital to the mirror manufacturing industry -- the mirror solutions and mirror backing paint markets," said Richard G. Parker, Director of the FTC's Bureau of Competition. "In addition, because of this divestiture, competition will continue in the research and development of new mirror solutions and mirror-backing paints for both building and technical applications."

Through an asset purchase agreement dated June 23, 2000, Valspar agreed to acquire Lilly for approximately $762 million. The FTC's complaint alleges that the acquisition, if consummated, would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade

Commission Act, in the markets for silver solutions, tin solutions, copper solutions and mirror backing paint. Both Lilly and Valspar produce mirror solutions and mirror backing paint. As a result, they are frequent competitors to win contracts with mirror manufacturers.

According to the complaint, the U.S. mirror solutions and mirror backing paint markets are highly concentrated, and the proposed acquisition would produce a firm controlling more than 90 percent of each of the mirror solutions markets and more than 60 percent of the mirror backing paint market. By eliminating competition between two of the most significant competitors in these highly concentrated markets, the complaint alleges, the proposed acquisition would allow the combined firm to exercise market power unilaterally, thereby increasing the likelihood that purchasers of mirror solutions and mirror backing paint would be forced to pay higher prices and that innovation and service levels in these markets would decrease.

In addition, according to the FTC, significant impediments to new entry exist in the mirror solutions and mirror backing paint markets. A new entrant into any of these markets would need to undertake the difficult, expensive and time-consuming process of developing a competitive product, establishing reliable U.S. distribution and technical support, and developing a reputation among mirror manufacturers for consistently producing a high-quality product. The complaint states that because of the difficulty of accomplishing these tasks, new entry into the mirror solutions markets or the mirror backing paint market could not be accomplished in a timely manner. Further, new entry into any one of these markets is unlikely because of the limited sales opportunities available to new entrants.

The proposed consent agreement is designed to remedy the acquisition's anticompetitive effects in the United States mirror solutions and mirror backing paint markets by requiring Valspar to divest its mirror coatings business to Spraylat Corporation within ten days of the date the Commission places the Order on the public record. If Valspar fails to do so, the Commission may appoint a trustee to divest the business. Based in Mount Vernon, New York, Spraylat is a family owned company that manufactures and sells specialty paints and coatings for industrial uses. Spraylat possesses the necessary industry expertise to replace the competition that existed prior to the proposed acquisition, according to the FTC.

The proposed consent agreement also includes a number of provisions designed to ensure that the transfer of Valspar's mirror coatings business to the acquirer is successful. The agreement requires Valspar to provide incentives to certain key employees to accept employment, and remain employed, by the acquirer. In addition, Valspar is prohibited from inducing key customers from terminating their contracts with the acquirer for a period of one year. Finally, Valspar employees involved with its mirror coatings business would be prohibited from disclosing any confidential information to employees involved with the Lilly business.

The Commission vote to accept the proposed consent agreement and place it on the public record comment was 5-0.

A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until January 18, 2001, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 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 $11,000.

Copies of the complaint, the proposed consent agreement, and an analysis of the agreement to aid in public comment are available from the FTC's web site at and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Media Contact:

Howard Shapiro,
Office of Public Affairs

Staff Contact:

Christina R. Perez,
Bureau of Competition

(FTC File No.: 001-0197)

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