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The Federal Trade Commission will require Graco Inc., a leader in the worldwide market for key industrial finishing equipment, to sell the worldwide liquid finishing business of Illinois Tool Works Inc. and ITW Finishing LLC under a proposed order, as part of a settlement resolving charges that its $650 million acquisition of several ITW businesses would have been anticompetitive and led to higher prices and reduced innovation for the North American manufacturers who rely on this equipment.

The FTC challenged the deal in December 2011, alleging that it would harm competition in the market for equipment used to apply paints and other liquid finishes to a variety of manufactured goods, such as cars, wood cabinets, and major appliances. 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 charged that the combined Graco/ITW would control a dominant share of North American sales of industrial liquid finishing equipment generally, and a monopoly in the market for circulation pumps used in paint systems in automobile manufacturing plants specifically. 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 also 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. In March 2012, the FTC 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 Commission also withdrew its court challenge to the deal.

The FTC has now voted to accept the consent agreement, which was signed by Graco, at the time the Commission issued its order to hold separate in March, and to approve a proposed order settling the charges in its administrative complaint in a manner calculated to ensure the continuation of the former ITW liquid finishing equipment businesses and assets worldwide (collectively, the Liquid Finishing Business Assets) as ongoing, viable businesses operating in the same markets as they were when they were acquired by Graco.

To accomplish this, the proposed order requires Graco to sell the Liquid Finishing Business Assets, including business activities related to the development, manufacture, and sale of products under the Binks, DeVilbiss, Ransburg, and BGK brand names, no later than 180 days from the date the order becomes final. The assets must be sold to an FTC-approved buyer, and if Graco has not sold them within the time required, the FTC may appoint a trustee to oversee their sale in a manner that complies with the terms of the order. Graco must continue to hold the Liquid Finishing Business Assets separate from its other businesses and maintain them as viable and competitive while it seeks a potential buyer.

The Commission vote to accept the consent agreement containing the proposed order was 4-0-1, with Commissioner Maureen K. Ohlhausen not participating. The proposed consent order will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until July 2, 2012, after which the Commission will decide whether to make it final.

NOTE: A consent order 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 up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

(FTC File No. 111-0169; Docket No. 9350)