Graco Settles FTC Anti-Trust Suit
Graco Inc., North America's largest spray foam and coatings equipment maker, has agreed to settle a long-running federal antitrust case over the acquisition of two former competitors.
The U.S. government said the acquisitions, completed in 2005 and 2008, resulted in higher prices and less competition in the industry.
The Federal Trade Commission alleged that Minneapolis-based Graco controlled between 90 and 95 percent of the North American market for fast-set equipment after acquiring Gusmer and GlasCraft Inc., its two closest competitors at the time.
'Higher Prices, Diminished Choices'
“[T]hose acquisitions eliminated virtually all of its competition in the fast-set equipment market,” Richard Feinstein, director of the FTC’s Bureau of Competition, said in a press release issued Thursday (April 18).
“The clear result was higher prices and diminished choices for consumers.”
Contractors use fast-set equipment to apply polyurethane foam and polyurea coatings in commercial and residential buildings.
The company was not required to disclose the transactions at issue in the case under the Hart-Scott-Rodino reporting requirements.
The Consent Agreement
The consent order settling the antitrust allegations against Graco is designed to restore competition to the fast-set equipment market that was lost as a result of the takeovers, according to the FTC.
The order requires Graco to halt any arrangement with distributors that precludes them from dealing with competitors, FTC said. It also prohibits Graco from “discriminating, coercing, threatening, or in any other way pressuring its distributors not to carry its competitors’ FSE products.”
Further, the order requires the company to license some of its technology to a competitor.
Graco said its foam equipment business covered by the FTC’s consent order accounts for less than five percent of the company’s overall business.
The agreement, though final, will be subject to public comment until May 20, and the FTC will publish a description of the consent agreement package in the Federal Register thereafter.
Graco Admits No Fault
In a statement also released Thursday, Graco said the settlement was “non-monetary” and maintained that FTC’s complaint had factual and legal inaccuracies. The company also noted that it admits no wrongdoing under the settlement.
The company said that its foam equipment business covered by the FTC’s consent order accounted for less than five percent of the company’s overall business.
“Consequently, management has concluded that a settlement enables Graco to put an end to the expense and distraction of protracted litigation with the FTC,” Graco stated.
Distributor Threats Alleged
Graco, which entered the fast-set equipment scene in 2002, sells the equipment almost exclusively to third-party distributors that act as middlemen between Graco and contractors.
About 550 distributors currently sell Graco FSE in the United States. Before the Gusmer and GlasCraft acquisitions, distributors generally carried products from multiple manufacturers, according to the complaint.
Under the settlement, PMC—a competitor formed by employees of the overtaken Gusmer company—will license Graco's technology. Graco had sued the fledgling company.
After the acquisitions of its two biggest competitors, Graco “raised prices for the products, reduced product options, reduced innovation, and raised barriers to entry for firms seeking to compete with Graco, by taking steps to ensure that its distributors would distribute only Graco’s products,” the FTC said.
Specifically, the complaint says Graco threatened distributors “with termination or other retaliation” if they agreed to carry products from competing manufacturers, the FTC said.
Acquisitions, Ongoing Lawsuit
Graco acquired Gusmer, of Lakewood, NJ, in 2005. Gusmer manufactured and sold a full line of fast-set equipment throughout North America and the world.
Two years later, former owners and employees of Gusmer, operating through PMC Garraf Maquinaria S.A., and Gama Machinery USA Inc. (now Polyurethane Machinery Corp.), sought to enter the market.
In 2008, Graco announced the acquisition of GlasCraft of Indianapolis, another competitor in the fast-set equipment market in North America.
Meanwhile, Graco brought a federal lawsuit against Polyurethane Machinery Corp., alleging theft of trade secrets and breach of contract, among other things. The private lawsuit has been ongoing and has effectively prevented the company from competing in the marketplace, according to the FTC.
“The uncertainty of the outcome of the litigation has kept some distributors from purchasing fast-set equipment from Gama/PMC,” FTC noted in its complaint.
The FTC order also includes settlement of years-old litigation between Graco and Polyurethane Machinery Corp. (PMC), of Lakewood, NJ.
Therefore, the consent order incorporates a settlement between Graco and Polyurethane Machinery that requires Graco to license certain technology to the competitor.
Competitor to License Graco Technology
In a Feb. 8 letter to spray foam distributors, Polyurethane Machinery President Mike Kolibas says that a settlement in the case is “imminent” and invites future business.
“We have tentatively agreed to buy a license to certain intellectual property owned by Graco as a result of its acquisition of Gusmer and to dismiss our claims against Graco,” he wrote.
Koblias goes on to say that Graco has agreed to dismiss claims against his company and that distributors would be free to carry both lines of equipment following the settlement.
Koblias did not respond Friday to a request for comment regarding the FTC consent order announcement.
ITW Complaint Continues
The settlement with the FTC is unrelated to another FTC review of Graco's $650 million deal to acquire the business of Illinois Tool Works Inc. and ITW Finishing LLC.
Graco is a manufacturer of systems and equipment that move, measure, control, dispense and spray fluid materials. The company serves industrial and commercial customers. The company’s products for coatings and foam application include proportioners, spray guns, transfer pumps, and accessories.
Editor's Note: This story was updated at 5:17 p.m. ET April 22 to correct an editing error. Per the letter from Mike Kolibas, president of PMC, PMC distributors are free to carry both Graco and PMC products. D+D News regrets the error.