Graco, Inc. (GGG) recently reached a consensus with the U.S. Federal Trade Commission (FTC) for the closing of its $650 million Illinois Tool Works Inc. (ITW) finishing business acquisition. The acquisition is scheduled for closing on April 2, 2012.
The FTC had filed litigation against this acquisition proposal on December 15, 2011, on grounds of anti-competition which is expected to occur from the infusion of Liquid Finishing business to Graco. However, as per the recent agreement between the company and FTC, the latter would allow the acquisition to close at the stipulated time, provided that the Liquid Finishing businesses do not conflate with Graco’s Powder Finishing and other businesses.
A final review is incipient at present by the FTC. Once this is completed, a final order shall be given to Graco which would formally identify the various businesses of ITW it would divest. This process of identification would then need to be completed within 180 days from the final decision issuance and order date.
The ITW acquisition was first proposed on April 14, 2011, and the acquisition is on the verge of completion almost after a year. Graco plans to add a few equipment and technologies to its existing product database from this acquisition. This includes Germa for its Powder Finishing, Binks spray for its industrial liquid finishing, DeVilbiss spray guns, Ransburg electrostatic devices and BGK curing technologies along with its various accessories.
ITW has been posting strong financials for a while now. In 2011, it's finishing businesses had sales of $375 million which was quite impressive considering the clouded fiscal economy prevalent. Graco’s management is ebullient of this venture as it would largely proliferate its distribution scenario in the end-markets, not to mention the long-term technological advancement the company shall enjoy along with the goodwill enhancement.
However, other players in the industry are also enthusiastic about making strategic acquisitions. Middleby Corporation (MIDD) finished acquiring the assets of Turkington USA, primarily to ameliorate its food processing platform. The company should remain wary of other big players too such as Manitex International Inc. (MNTX) and Atlas Copco AB (ATLKY) in the industry.
We continue to maintain a Neutral recommendation on Graco. In the short run, our view is supported by a Zacks #3 Rank on the stock which translates into a short-term rating of Hold.
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