Graco Will Not Integrate Certain Businesses Pending FTC's Final Divestiture Order
The Federal Trade Commission issued an order requiring Graco Inc. to hold separate the worldwide liquid finishing equipment businesses of Illinois Tool Works Inc. and ITW Finishing LLC, while allowing Graco to complete its proposed $650 million acquisition of all of ITW's finishing equipment businesses. The FTC challenged the deal on competition grounds in December 2011.
The order ensures that Graco will not integrate certain assets into its operations, pending the FTC's consideration of a proposed settlement that has been entered into by Graco and the FTC's staff, but not yet accepted by the Commission. Under the order, the ITW liquid finishing equipment businesses will be run independently of – and in competition with – Graco until the FTC determines the divestitures necessary to prevent competitive harm from the acquisition. Graco can complete its acquisition, but must hold separate the entirety of the worldwide ITW liquid finishing equipment businesses, which operate under the Binks, DeVilbiss, Ransburg, and BGK brand names.
During this hold separate period, FTC staff will more fully analyze the appropriate scope of divestiture and other relief needed to remedy the anticompetitive effects of the acquisition, as alleged in the FTC's complaint, and make its recommendation to the Commission. The Hold Separate Order allows Graco to integrate the non-liquid finishing equipment business it acquires from ITW, but will ensure that the liquid finishing assets held separate remain viable and marketable until the necessary assets can be divested. After staff completes its review, the Commission will take the action it deems appropriate.
Graco seeks to acquire the finishing equipment businesses of ITW, its rival in the manufacture and sale of equipment used to apply paints and other liquid finishes to a variety of manufactured goods, such as cars, wood cabinets, and major appliances. ITW also manufactures and sells powder coating equipment, which differs from liquid finishing equipment. A consistent high-quality finish is critical to the manufacturing process. Manufacturers need reliable, proven finishing equipment and access to local service when problems arise.
The FTC's Complaint. In December 2011, the FTC challenged Graco's proposed acquisition, alleging it would harm competition in North American markets for industrial equipment used to spray paint and liquid finishes on a wide variety of finished manufactured goods. The case is part of the FTC's ongoing efforts to promote competition and benefit consumers by keeping prices low and the quality and choice of goods high.
The FTC charged that the combined Graco/ITW would control a dominant share of North American sales of industrial liquid finishing equipment and also have a monopoly specifically in the market for circulation pumps used in paint systems in automobile manufacturing plants. The FTC also alleged that the proposed transaction would end the close competition between Graco and ITW, its largest competitor, reduce or eliminate the substantial one-time price breaks and other discounts Graco and ITW offer to their distributors, and lessen Graco's incentives to develop new products after the merger.
The FTC further alleged that the competition lost by the acquisition could not be easily replaced, as smaller liquid finishing equipment manufacturers lack the distribution and brand acceptance to compete with a combined Graco/ITW.
On March 13, 2012, the FTC issued an order withdrawing the matter from administrative adjudication for the purpose of considering a proposed settlement.
The Commission vote approving the Order to Hold Separate and Maintain Assets was 4-0. The Commission also issued a statement accompanying today's order, explaining that the FTC is able to accept the Hold Separate Order and allow the parties to complete their planned acquisition because both the Commission staff and Graco appear to be moving toward a solution that will benefit consumers.
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