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Rival ‘Vigorously’ Pressing Graco Suit

Thursday, February 9, 2012

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While Graco Inc. prepares to parry federal antitrust action aimed at stopping its takeover of ITW Finishing, an industry competitor is “vigorously” pushing its own antitrust lawsuit against the nation’s largest spray equipment maker.

Polyurethane Machinery Corp. (PMC), based in Lakewood, NJ, has announced that “it continues vigorously to pursue its claims against Graco, Inc. for violation of federal antitrust laws.”

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The Federal Trade Commission and a competitor are both accusing Graco of anticompetitive practices.

The manufacturer of urethane spray and pour equipment has been prosecuting antitrust claims against Graco since 2008 in U.S. District Court in New Jersey.

‘Retaliation’ Concerns

PMC alleges that after Graco acquired Gusmer Corp. and GlasCraft Inc., it “systematically raised the prices of spray foam equipment, while simultaneously attempting to inhibit PMC’s entry into the market by threatening distributors with retaliation if they choose to do business with PMC.”

Graco did not respond Thursday to a request for comment on the case or on PMC’s latest statements.

The claims are similar to those made in December by the Federal Trade Commission, which announced that it would attempt to block Graco’s $650 million proposed takeover of chief rival ITW Finishing LLC from Illinois Tool Works Inc.

The FTC said it had filed an administrative complaint and would follow with federal-court action to halt the deal.

‘A Bad Deal’

Richard Feinstein, director of the FTC's Bureau of Competition, called the Graco-ITW transaction “a bad deal for manufacturers and consumers [that] would leave them facing higher prices and reduced innovation.”

The acquisition would create a monopoly, squelch product innovation, discourage potential new entrants to the industry, and harm manufacturing nationwide, the FTC said.

ITW Finishing owns five of the industry’s oldest, best-known brands: Binks, DeVilbiss, Gema, Ransburg and BGK Finishing Systems.

Distributors: ‘The Sweet Spot’

PMC specifically notes FTC’s allegation that, if the Graco-ITW deal is completed, distributors would “fear retaliation from Graco if they carry other brands.” 

The FTC complaint says that distributors would have “no recourse” after the acquisition “to curb the loss of this competition.”

The complaint says:

“Graco’s president acknowledges that Graco already enjoys power over its distributors and industrial end users: ‘Number one is that you’ve got lots of end users out there. Oh, by the way, those end users like Graco. And oh, by the way, if they already have Graco and they know Graco, the switching costs are significant for them to switch away from Graco.

“’So . . . not only do you have thousands of end users, you have hundreds of distributors. And for a manufacturer, that’s a nice spot to be. . . . The ideal place to be, the sweet spot, for having the buyer power be low is to have lots of customers and lots of distributors.’”

‘Anticompetitive Consequences’

PMC says such “anticompetitive consequences” are “remarkably similar to those about which PMC has been complaining in the polyurethane spray foam equipment market.”

PMC says Graco has offered in the FTC case to notify distributors that they were free to carry competing brands and that Graco “would refrain from unusually large price increases for three years.”

In the spray foam equipment market, however, “Graco has offered its distributors no such peace of mind,” says PMC.

A hearing on the FTC’s administrative complaint has been set for May 15.

   

Tagged categories: Graco; ITW Industrial Finishing; Lawsuits; Polyurethane; Spray equipment; Spray polyurethane foam; Urethane

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