Exhibit 10.1
UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
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In the Matter of
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GRACO INC.,
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Docket No. 9350
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a corporation
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NON-PUBLIC
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ILLINOIS TOOL WORKS INC.,
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a corporation, and
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ITW FINISHING LLC,
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a limited liability company.
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AGREEMENT
This Agreement is by and between Respondents Graco Inc. (“Graco”), Illinois Tool Works Inc., and ITW Finishing LLC (collectively, “the Respondents”) and Counsel for the Complaint in
the above-captioned matter (“Complaint Counsel”).
WHEREAS
, Respondent Graco is a
corporation organized, existing, and doing business under and by virtue of the laws of the state of Minnesota, with its office and principal place of business located at 88-11
th
Avenue Northeast, Minneapolis, Minnesota 55413, and is engaged, among other things, in the manufacture and sale of
liquid finishing equipment throughout North America and the world; and
WHEREAS
, Respondent ITW Finishing LLC is a
limited liability company organized, existing, and doing business under and by virtue of the laws of the state of Delaware, with its office and principal place of business located at 3600 West Lake Avenue, Glenview, Illinois 60026, and is engaged,
among other things, in the manufacture and sale of liquid finishing equipment throughout North America and the world; and
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WHEREAS
, Respondent Illinois Tool Works Inc. is a corporation organized, existing,
and doing business under and by virtue of the laws of the state of Delaware, with its office and principal place of business located at 3600 West Lake Avenue, Glenview, Illinois 60026, and indirectly wholly owns ITW Finishing LLC (collectively,
“ITW”); and
WHEREAS,
Graco and ITW entered into an Asset Purchase Agreement dated April 14, 2011,
pursuant to which Graco proposes to acquire, among other things, certain liquid finishing equipment assets and equity interests from ITW for $650 million (“Acquisition”); and
WHEREAS,
the Federal Trade Commission (“Commission” or “FTC”) is an independent administrative agency of the
United States Government, established under the Federal Trade Commission Act, 15 U.S.C. § 41,
et seq.
(“FTC Act”), with its principal offices at 600 Pennsylvania Avenue, NW, Washington, D.C. 20580; and is vested with authority
and responsibility for,
inter alia,
enforcing Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, by challenging acquisitions that may substantially lessen
competition in any line of commerce in any section of the country; and
WHEREAS,
the Commission, having conducted an
investigation of the Acquisition and determined that it had reason to believe the Acquisition, if consummated, may substantially lessen competition in certain relevant liquid finishing equipment markets in violation of Section 7 of the Clayton
Act, as amended, 15 U.S.C. § 18, and constitutes an unfair method of competition in violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, and that the agreement pursuant to which Graco would acquire the assets and
interests of ITW constitutes an unfair method of competition in violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, issued its administrative Complaint (“Complaint”) charging the Respondents with said
violations on December 15, 2011
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and further authorized its staff (“FTC staff’) to file a separate
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complaint in federal district court seeking a temporary restraining order and preliminary injunction to halt the Acquisition pending the FTC’s administrative adjudicative proceeding and any
subsequent appeals; and
WHEREAS,
the Respondents, having been served with a copy of the Complaint, together with a
notice of contemplated relief, answered the Complaint by denying said charges; and
WHEREAS,
an evidentiary hearing in
In the Matter of Graco Inc., Illinois Tool Works Inc., and ITW Finishing LLC,
FTC Docket No. 9350, has been scheduled to commence before an Administrative Law Judge on May 15, 2012; and
WHEREAS
, the Commission has also initiated a federal civil action,
Federal Trade Commission v. Graco, Inc., et al.,
Civ.
No. 0:12-cv-00307-PJS-AJB, currently venued in the District of Minnesota; and
WHEREAS,
the Respondents have now
represented to Complaint Counsel that they agree to certain specified terms of settlement of this matter providing for divestiture and other relief if closing on the Acquisition can be allowed to occur by April 2, 2012; and
WHEREAS,
Complaint Counsel have indicated that they require time beyond April 2, 2012, within which to complete an
investigation and consideration of the appropriate scope of divestiture and other relief to remedy the competitive effects of the Acquisition as alleged in the Complaint; and
WHEREAS
, the Respondents and Complaint Counsel have entered into this Agreement dated March 9, 2012 to accompany a joint motion by Complaint Counsel and the Respondents, pursuant to Rule
3.25(c) of the Commission’s Rules of Practice (“Commission Rule”), to withdraw this matter from adjudication for the purpose of considering a proposed settlement, and
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requesting that the Secretary of the Commission issue an order withdrawing this matter from adjudication and staying the proceedings before the Administrative Law Judge, so that the Commission
may consider the proposed settlement; and
WHEREAS,
Complaint Counsel agree to recommend that the Commission accept,
subject to certain confidentiality and timing considerations and in accordance with the terms of this Agreement, an Agreement Containing Consent Orders (“Consent Agreement”) that has been executed by the Respondents and by Complaint
Counsel; and
WHEREAS
, Complaint Counsel agree that, if the Secretary withdraws this matter from administrative
adjudication, they will withdraw the federal district court complaint without prejudice pending the Commission’s review of the proposed settlement of this matter, and will further recommend that the Commission defer voting on the proposed
Decision and Order and keep its terms confidential and non-public pending completion of the inquiry by FTC staff; and
WHEREAS
, Respondents request and Complaint Counsel agree that the Commission will accord confidential treatment to all filings,
submissions, documentary materials, and other information submitted by the Respondents prior to or pursuant to this Agreement, pursuant to Sections 20 and 21 of the FTC Act, 15 U.S.C. §§ 57b-1 and 57b-2, and Commission Rules 4.9
et
seq
., 16 C.F.R. §§ 4.9
et seq
., and as if all such filings, submissions, documentary materials, and other information were marked “confidential” when submitted, pursuant to Section 21(c) of the FTC Act, 15 U.S.C.
§ 57b-2(c). If applicable, such information will be treated as having been provided in a law enforcement investigation in lieu of compulsory process for purposes of Section 21(f) of the FTC Act, 15 U.S.C. § 57b-2(f), and Commission
Rule 4.10(a)(8) and (d), 16 C.F.R. §§ 4.10(a)(8), (d); and
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WHEREAS,
the Respondents have committed,
inter alia,
that, if the Commission
takes no action to enjoin consummation of the Acquisition by the Respondents before the Commission has completed its consideration of the appropriate scope of divestiture and other relief to remedy the competitive effects of the Acquisition, then:
(1) the Respondents agree to enter into and remain bound by the Consent Agreement (unless the Consent Agreement is rejected by
the Commission) containing a proposed Decision and Order requiring Graco to divest such assets of the liquid finishing business and providing for other relief as the Commission deems necessary to remedy the competitive effects of the Acquisition as
alleged in the Complaint (“competitive effects alleged”) within 180 days after the Decision and Order becomes final; such other relief as the Commission deems necessary to remedy the competitive effects alleged; and an Order to Hold
Separate and Maintain Assets (“Hold Separate”) (both orders collectively, “Orders”) in the form that has been agreed to by the Respondents pursuant to the Consent Agreement, or in such other form as the Respondents and the
Commission may agree, and the Commission ultimately determines will provide appropriate relief at the conclusion of FTC staff’s investigation concerning the scope of divestiture necessary to remedy the competitive effects alleged; and
(2) Respondent Graco agrees to hold separate and apart, and to maintain the independence, viability, marketability, and
competitiveness of the liquid finishing equipment assets and businesses to be held separate, as defined in the Hold Separate, and Respondents agree to comply with the terms of the Hold Separate from the date of this Agreement until the Hold Separate
becomes a final and effective order upon service to Respondents by any means provided in Commission Rule 4.4(a), 16 C.F.R.§ 4.4(a), or by
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delivery to Respondents’ counsel, upon which event Respondent Graco’s obligations will be governed by the terms of the Hold Separate; and
(3) the Respondents agree not to consummate the Acquisition until the Hold Separate has been served on them and has become a final and
effective order; and
(4) the Respondents agree to cooperate fully and in good faith with Complaint Counsel’s
investigation of the relief needed to remedy the competitive effects alleged in accordance with the terms, conditions, and understandings set forth in this Agreement;
NOW, THEREFORE,
the Respondents and Complaint Counsel agree as follows:
1.
Complaint Counsel’s entry into the Agreement does not constitute a waiver by the Commission of any right or ability it may have to challenge the Acquisition as a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, as
amended, or Section 5 of the FTC Act, 15 U.S.C. § 45, as amended (“the Acts”), except as expressly stated in this Agreement; and further, does not constitute a waiver by the Commission of any right or ability it may have to
challenge any other transaction(s) between the Respondents as a violation of the Acts if the Acquisition does not close.
2.
If (i) the Respondents and Complaint Counsel sign this Agreement; (ii) the Commission votes to issue the Hold Separate; and (iii) the Hold Separate becomes final and effective by means of service upon the Respondents (which service
may be effected by delivery to Respondents’ counsel), the Respondents may consummate the Acquisition, provided that (iv) Respondents comply with all the terms of this Agreement and the Hold Separate, and (v) the right of the
Commission to take any action for a violation of this Agreement, including any action that may be warranted to enjoin or otherwise address the Respondents’ violation of the Consent Agreement or the Hold Separate, and to enforce their terms, is
hereby reserved.
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3. The Respondents hereby consent to and agree to be bound by the terms of the Consent
Agreement, including the Hold Separate and proposed Decision and Order, in the form that has been agreed to by the Respondents pursuant to the Consent Agreement, or in such other form as the Respondents and the Commission may agree, and which the
Commission may ultimately determine will provide appropriate relief to remedy the competitive effects of the Acquisition as alleged in the Complaint. The Respondents further agree not to withdraw, or attempt to withdraw, from the Consent Agreement.
The Respondents further agree not to challenge the jurisdiction of the Commission to issue the Decision and Order or the Hold Separate.
4. The Respondents hereby agree to cooperate with Complaint Counsel, and after the matter has been withdrawn from adjudication, with members of the FTC staff in the completion of their investigation of
appropriate relief by responding promptly and fully to any and all requests for documents, information, or other materials that the Commission may make or issue to the Respondents, and by making their officers, directors, employees, and other
personnel available for interviews and investigational hearings before FTC staff.
5. If, after FTC staff have completed an
investigation of the appropriate scope of divestiture and other relief applicable to the held-separate liquid finishing equipment assets and businesses, and have made a recommendation to the Commission, and the Commission thereafter determines to
issue and serve a Decision and Order (which may include the proposed Decision and Order), in disposition of the proceeding, which determination the Commission may, in its sole discretion, make at any time, the Respondents hereby waive any right to
contest that determination.
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6. This Agreement will remain in effect, in accordance with Commission Rule 3.25(f), 16
C.F.R § 3.25(f), until the Commission: (i) accepts the Consent Agreement in conformity with the procedures set forth in Commission Rules 2.34 and 3.25(f), 16 C.F.R. §§ 2.34, 3.25(f), and places such Consent Agreement on the
public record for the receipt and consideration of public comments, in which event, if final disposition of this proceeding occurs as provided under Commission Rules 2.34 and 3.25(f), this Agreement will be superseded by the terms of such Consent
Agreement; (ii) rejects the Consent Agreement and returns the matter to adjudication for further proceedings; or (iii) takes such other action as the Commission may deem appropriate (“Agreement Period”).
7. Should the Commission seek in any proceeding to compel Graco to divest itself of any or all of the held-separate liquid finishing
equipment assets and businesses subject to the Consent Agreement and the Orders, the Respondents hereby agree that they will not raise any objection to such a proceeding based on the fact that this matter was withdrawn from administrative
adjudication or that the Commission has permitted the Acquisition to be consummated. The Respondents hereby also waive all rights to contest the validity of this Agreement.
8. The Respondents hereby agree that, during the Agreement Period, in order to preserve and ensure the independence, viability, marketability, and competitiveness of the held- separate liquid finishing
equipment assets and businesses identified in the Hold Separate, they will comply with the terms of the Hold Separate from the date they sign this Agreement.
9. Unless otherwise agreed to in writing with FTC staff, Graco hereby agrees that, within ten (10) days of the date this Agreement is signed by the Respondents, Graco will retain a Hold Separate
Trustee that is acceptable to the FTC staff, in a manner consistent with the
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procedures and requirements set forth in Paragraph II.C.I. of the Hold Separate. The Hold Separate Trustee shall have the powers, duties, authorities and responsibilities as set forth in
Paragraph II.C. of the Hold Separate, and consistent with the terms of this Agreement, the Consent Agreement and the Orders.
10. Neither the Consent Agreement nor the Orders shall become part of the public record of the proceeding unless and until the Consent
Agreement is accepted by the Commission pursuant to the procedures set forth in Commission Rule 2.34, 16 C.F.R. § 2.34, or otherwise in accordance with Commission Rule 3.25(f), 16 C.F.R. § 3.25(f).
11. The Respondents hereby agree that, for purposes of determining or securing compliance with this Agreement, including the Consent
Agreement and Orders, and subject to any legally recognized privilege, and upon written request and upon five (5) days notice to the relevant Respondent(s), such Respondent(s) shall, without restraint or interference, permit any duly authorized
representative(s) of the Commission:
(a) access, during business office hours of the relevant Respondent(s)
and in the presence of counsel, to all facilities and access to inspect and copy all books, ledgers, accounts, correspondence, memoranda, and all other records and documents in the possession or under the control of the relevant Respondent(s)
related to compliance with this Agreement, including the Consent Agreement and Orders, which copying services shall be provided by such Respondent(s) at the request of the authorized representative(s) of the Commission and at the expense of such
Respondent(s); and
(b) to interview officers, directors or employees of the relevant Respondent(s), who may
have counsel present, regarding any such matters.
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GRACO INC.
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FEDERAL TRADE COMMISSION
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By:
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/s/ Patrick J. McHale
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By:
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/s/ Marc W. Schneider (by Peter Richman)
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Patrick J. McHale
President
and Chief Executive Officer
Graco Inc.
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Marc W. Schneider
Counsel
Supporting the Complaint
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Date: 03/12/12
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Date: 03/12/12
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APPROVED:
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/s/ Richard G. Parker
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Richard G. Parker
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O’Melveny & Myers LLP
Counsel for Graco Inc.
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/s/ Peter Richman
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Peter Richman
Deputy
Assistant Director
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ILLINOIS TOOL WORKS INC. and
ITW FINISHING LLC
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/s/ Phillip L. Broyles
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Phillip L. Broyles
Assistant Director
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By:
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/s/ David B. Speer
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David B. Speer
Chairman and
Chief Executive Officer
Illinois Tool Works Inc.
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/s/ Norman A. Armstrong, Jr. (by RAF)
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Date: 03/12/12
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Norman A. Armstrong, Jr.
Deputy Director
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/s/ J. Robert Robertson
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/s/ Richard A. Feinstein
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J. Robert Robertson
Hogan
Lovells US LLP
Counsel for Illinois Tool Works Inc. and
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Richard A. Feinstein
Director
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ITW Finishing LLC
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Bureau of Competition
Federal Trade Commission
Washington, D.C.
20580
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Exhibit 99.1
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News Release
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FOR IMMEDIATE RELEASE:
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FOR FURTHER INFORMATION:
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Tuesday, March 27, 2012
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Investors: James A. Graner (612) 623-6635
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GRACO ANNOUNCES SCHEDULED CLOSING DATE FOR
FINISHING BRANDS ACQUISITION
Powder Finishing business clears FTC hurdles,
while Liquid Finishing
businesses remain under review
MINNEAPOLIS, MN (March 27, 2012)—
Graco Inc.
(NYSE: GGG)
announced today the scheduled
closing of its previously-announced $650 million acquisition of the Illinois Tool Works Inc. (NYSE: ITW) finishing businesses for April 2, 2012. The Company has reached an agreement with the United States Federal Trade Commission
(“FTC”) that will allow for closing to occur while the FTC investigates and considers a settlement proposal from Graco.
The acquisition was first announced on April 14, 2011 and includes complementary powder and liquid finishing equipment operations, technologies and brands. In powder finishing, Graco will add Gema
®
, a global leader in superior powder coating technology (the “Powder Finishing” business). In industrial
liquid finishing, the acquisition includes Binks
®
spray finishing equipment, DeVilbiss
®
spray guns and accessories, Ransburg
®
electrostatic equipment and accessories and BGK curing technology (excluding Powder Finishing, collectively known as the “Liquid Finishing” businesses).
Since Graco originally filed its required notification pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(“HSR Act”), on May 2, 2011, the Company has been cooperating with the FTC in its review of the acquisition. On December 15, 2011, the FTC formally filed a complaint to challenge the acquisition on the grounds that the addition
of the Liquid Finishing businesses to Graco would be anticompetitive, which Graco has denied.
In an effort to complete the transaction in a
timely manner, Graco has proposed a settlement to the FTC. Details of the settlement proposal were not disclosed. The FTC has indicated that the investigation and consideration of Graco’s settlement proposal will require time beyond the
scheduled closing date of April 2, 2012. The FTC will take no action to block the closing, but has issued an order for Graco to hold the Liquid Finishing assets separate from Powder Finishing and other Graco businesses.
At the completion of its review, the FTC will issue a final decision and order that will identify the products, businesses and/or assets that Graco will
be required to divest. Such divestiture must be completed in the 180 days following the issuance of the final decision and order. Graco does not expect that it will be required to divest any businesses or assets outside of Liquid Finishing, although
the required divestiture may include a portion or all of the Liquid Finishing businesses.
“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,” said Patrick J. McHale, Graco’s President and Chief Executive Officer. “ITW’s finishing businesses have continued to perform very well in the past year. For calendar
2011, the finishing businesses generated sales of $375 million, which was close to the prior sales peak that was achieved before the economic downturn. Profitability has also improved, with the businesses generating EBITDA of $80 million, a new
peak.
“We are very pleased that the Gema Powder Finishing business has passed the review of the FTC and are excited to add this business
to the Graco family,” continued McHale. “The addition of powder finishing technologies to Graco’s existing finishing operations is highly strategic and complementary: it allows the Company access to attractive end markets; the global
distribution base of the business is strong and growing; the emerging market exposure of this business is highly attractive; and the brand name is well established with end users as a high quality, technological leader. In addition, the business has
a large installed base and sufficient scale to help drive long-term growth worldwide. For 2011, Powder Finishing represented approximately one-third of the sales and profitability of the ITW finishing brands.”
In compliance with the FTC’s order for Graco to hold the Liquid Finishing assets separate, the Liquid Finishing businesses will be acquired into a
structure that limits commingling of the operations with Graco’s other businesses. Although Liquid Finishing will be wholly-owned by Graco, the businesses will be run independently by existing management under the supervision of a trustee who
reports directly to the FTC. The independent structure will remain in place until the FTC issues a final decision and order and the required divestiture is completed.
“We will continue to work with the FTC in its consideration of our proposed settlement during this hold separate period” said McHale. “During this period, we ask the Liquid Finishing
employees and their distributors worldwide to continue to do what you do best: serve your customers, stay focused on the operations, and continue to drive innovation.”
The Powder Finishing results will be consolidated within Graco Inc.’s results. Under United States Generally Accepted Accounting Principles (“GAAP”), the Liquid Finishing businesses will
not meet the control requirement during the hold separate period for consolidation purposes and will be accounted for as a cost investment. Similar to any other wholly-owned subsidiary, Graco is required to fund any operational needs of Liquid
Finishing during the hold separate period, while any excess cash generated by the businesses will be available to Graco.
The Company will be
amending its revolving credit agreement and its senior unsecured notes to facilitate the closing of the finishing brands transaction.
Graco
Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid materials. A
recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries. For additional information about Graco Inc., please visit us at www.graco.com.
Cautionary Statement Regarding Forward-Looking Statements
A forward-looking statement is any statement made in this release that reflects the Company’s current thinking on the acquisition of the finishing business from ITW. All forecasts and projections are
forward-looking statements. The Company undertakes no obligation to update these statements in light of new information or future events.
The Company desires to take advantage of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will
actually be achieved. Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to: whether and when the required regulatory approvals will be
obtained, whether and when the closing conditions will be satisfied and whether and when the transaction will close, the ability to close on committed financing on satisfactory terms, the amount of debt that the Company will incur to complete the
transaction, whether and when the Company will be able to realize the expected financial results and accretive effect of the transaction, how customers, competitors, suppliers and employees will react to the transaction, economic changes in global
markets, the extent of the acquired businesses required to be divested, whether the Company will be able to find a suitable purchaser(s) and structure the divestiture on acceptable terms, and whether the Company will be able to complete a
divestiture in a time frame that is satisfactory to the Federal Trade Commission. Please refer to Item 1A of, and Exhibit 99 to, the Company’s Annual Report on Form 10-K for fiscal year 2011 for a more comprehensive discussion of other
risk factors that relate generally to the Company’s business and financial condition. The Annual Report on Form 10-K is available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at
www.sec.gov.
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