FTC Opens Door to Settlement Talks Over $650M Graco Deal

Regulators, which sought to block Graco's proposed acquisition over antitrust concerns, have now paved the way to discussions of a settlement.

About three months after federal regulators sought to block Graco, Inc.'s proposed $650 million acquisition of Illinois Tool Works' finishing business, they have withdrawn their case that was brought before an administrative law judge. The case was withdrawn “for the purpose of considering a proposed consent agreement.”

The Federal Trade Commission (FTC) in December sought to freeze the deal before beginning a hearing with an administrative law judge. Richard Feinstein, director of the FTC's Bureau of Competition, said at that time that “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 FTC also alleged that the deal would reduce or eliminate the discounts both firms offer to distributors and reduce Graco's incentives to develop new products after the merger.

Graco President and CEO Patrick McHale denied the claims, and at the time described the proposed deal as “pro-competitive.”

The recent decision to drop the case opens the door to settlement discussions.

This week, antitrust lawyers told the Star Tribune that the FTC's decision to withdraw the case could indicate that the regulators foresee a potential settlement.

Graco Chief Financial Officer Jim Graner told the Star Tribune that he hopes the settlement talks will allow his company to resolve the government's concerns without going to court. He indicated that a resolution might involve “a limited number of product divestitures.” An antitrust lawyer told the Minneapolis newspaper that the FTC may find only a part of the transaction to be anti-competitive, and selling off a part of Illinois Tool Works' business in the deal might help the two sides reach a compromise.

The Minneapolis newspaper reported that Graco will be required to pay a $20 million termination fee to Illinois Tool Works if the government blocks the deal over antitrust concerns.

Meanwhile, the FTC indicated in a filing that a proposed settlement won't be made public until it has approved the deal.

Minneapolis-based Graco is one of Minnesota's 40-largest public companies based on revenue, which totaled $895.3 million in its most recently completed fiscal year.