Regulators Seek to Stop Graco’s $650M ITW Deal

Federal regulators are seeking to block Minneapolis-based Graco's $650 million acquisition of Illinois Tool Works' finishing business, but Graco intends to defend the deal in court.

The Federal Trade Commission (FTC) is attempting to stop Graco, Inc.'s purchase of Illinois Tool Works, Inc.'s (ITW) finishing businesses on the grounds that the deal would reduce market competition and lead to increased prices.

Minneapolis-based Graco in April announced plans to buy ITW's finishing businesses for $650 million in cash. 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. Now, the FTC is attempting to block the deal altogether.

Graco and ITW manufacture industrial equipment that is used to apply liquid finishes to manufactured products, and according to the FTC, Graco and ITW “dominate markets for this equipment.”

The FTC's commissioners decided in a 4-0 vote to file a complaint in federal court. It is seeking to temporarily freeze the deal before beginning a hearing with an administrative law judge on May 15.

“Combining competitors in these markets would be a bad deal for manufacturers and consumers, and would leave them facing higher prices and reduced innovation,” Richard Feinstein, director of the FTC's Bureau of Competition, said in a statement.

The FTC's complaint also alleges 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. And competitors like Exel North America, a “distant third” in the market, lack the means to compete with the company that would be produced by Graco's merger, according to the FTC.

Graco President and CEO Patrick McHale said in a statement that he is “disappointed” with the FTC's decision to challenge the acquisition. He believes that the proposed deal is “pro-competitive,” and said that the company intends to “vigorously fight for approval in court.”

“This transaction will benefit both end users and our distributor partners as we continue to invest in new products, customer service, and manufacturing efficiencies,” McHale said. “It is unfortunate that the FTC has taken action which we believe, if successful, will hurt manufacturing and jobs in this country.”

Graco is one of Minnesota's 50-largest public companies based on revenue, which totaled $744.1 million in its most recently completed fiscal year.