Spray-equipment giant Graco Corp. will have to sell off the lion’s share of the businesses it just acquired from chief rival Illinois Tool Works to settle antitrust allegations that have dogged the deal, the Federal Trade Commission has announced.
Under a proposed order filed Friday (June 1), the FTC said Graco must divest the liquid finishing businesses of Illinois Tool Works and ITW Finishing within 180 days of its final order, which is set for July 2. Graco said it would comply with the order.
|Market leader Graco had hoped to take over its biggest competitor in liquid finishing equipment.|
That means Graco would lose possession of four key ITW units that it just bought, but never controlled: Binks spray finishing equipment, DeVilbiss spray guns and accessories, Ransburg electrostatic equipment and accessories, and BGK curing technology.
Those companies would thus remain “ongoing, viable businesses operating in the same markets as they were when they were acquired by Graco,” the FTC said.
The proposed order is subject to a 30-day comment period that will end July 2. The agreement would remain in force for 10 years.
‘We are Disappointed’
“We are disappointed with the filing of the proposed order by the FTC,” said Patrick J. McHale, Graco’s President and CEO.
“While we strongly believe that the settlement proposal put forth by Graco was more than sufficient to allay the FTC’s concerns about future competition in the marketplace, we will abide by the final decision and order when it is issued.”
The FTC’s decision was a stunning setback to the controversial $650 million takeover, announced in April 2011. Under the deal, Graco, the spray equipment market leader, would have swallowed its biggest competitor.
In December, however, federal antitrust regulators challenged the takeover in an administrative complaint and federal-court action.
Regulators said the deal would give Graco/ITW a dominant share of the North American liquid finishing market and a monopoly over circulation pumps used in paint systems in automobile manufacturing plants.
|Binks, which pioneered liquid spray finishing technology over 100 years ago, will remain outside Graco Corp.’s control. So will DeVilbiss, Ransburg and BGK.|
That market concentration would squelch innovation, chill competition and drive up prices, which could prove damaging throughout the manufacturing sector and to finishing equipment distributors, the FTC said.
“Combining competitors in these markets would be a bad deal for manufacturers and consumers, and would leave them facing higher prices and reduced innovation,” the agency said.
‘Moving Toward a Solution’
By late March, however, the FTC had softened its opposition, saying that it and Graco “appear to be moving toward a solution that will benefit consumers.” The FTC also announced that it would drop its legal challenges while considering Graco’s proposed settlement.
Graco was then allowed to close the deal, but was ordered to keep the liquid finishing businesses separate—under independent control—while the FTC review continued.
On Friday, the FTC announced that Graco’s divestiture of the four companies would protect competition in the market for equipment used to apply coatings, paint and other liquid finishes.
Under the proposed order, Graco must sell the businesses to an FTC-approved buyer. If Graco cannot find a buyer within the time required, the FTC may appoint a trustee to oversee the sale “in a manner than complies with the terms of the order.”