Graco to Close $650M ITW Deal Amid Antitrust Review

Graco plans to close its acquisition of Illinois Tool Works' finishing businesses next week, but regulators might require the company to sell some of the acquired units due to antitrust concerns.

Graco, Inc., said Tuesday that it will close next week on its deal to acquire the finishing businesses of Illinois Tool Works (ITW), reaching an agreement with the Federal Trade Commission that allows the company to close the deal on April 2, while regulators review the purchase and consider a proposed consent agreement from Graco.

While details of the proposal have not been disclosed, Graco said that the FTC might later require the company to divest some of the assets or businesses that it buys from ITW. Graco will also need to keep the assets of the liquid finishing business that it acquires from ITW separate from its other businesses and operating under the supervision of an FTC trustee until the agency announces its decision.

Graco had announced plans for the $650 million acquisition almost a year ago; the deal includes ITW's powder and liquid finishing equipment, operations, technologies, and brands. Graco said at that time that it expected the deal to close in June, but in July, the company revealed that it had received a request for additional information from the FTC regarding the proposed deal.

Then in December, the FTC sought to block the deal and filed a lawsuit in federal court. The agency said at the 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.” It also said 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.”

Earlier this month, the FTC withdrew its case and paved the way for discussions with Graco.

“We are looking forward to moving this transaction on to the next phase, although the final structure remains under consideration and will be impacted by requirements imposed by the FTC,” McHale said Tuesday in a statement.

McHale added that ITW's finishing businesses have performed very well in the past year, with sales totaling $375 million in 2011, which was close to a pre-recession sales peak. The businesses' profitability also improved during the year; their EBITDA reached a new peak of $80 million, he said.

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.