Two days after receiving a federal order to divest, Graco Inc. said it has a buyer for the Illinois Tool Works liquid finishing division it bought in April 2012.
Carlisle Companies Inc., an auto parts and construction equipment maker in Charlotte, N.C., will buy the division from Graco for $590 million, the companies said Wednesday.
The agreed-upon sales price will give Graco a $168 million profit over the $422 million spent to buy the liquid finishing division just 18 months ago.
Graco officials said they began negotiating the division sale to Carlisle months ago.
Carlisle CEO David Roberts is the former CEO and chairman of Minneapolis-based Graco. Roberts ran Graco from 2001 through 2007 before leaving for the larger Carlisle. Once the division sale goes through, Graco and Carlisle will be competitors in the paint spray equipment business, Roberts said in a statement.
"When we heard that liquid finishing brands would be sold, we immediately pursued the opportunity to acquire the business," Roberts said. "We have made a solid commitment to build a new Carlisle segment as a viable, global competitor to Graco with liquid finishing brands as the foundation and believe that it will be a significant contributor to the success of Carlisle in the years to come."
The liquid finishing assets sold to Carlisle will include Binks spray finishing equipment, DeVilbiss spray guns and accessories, Ransburg electrostatic equipment and BGK curing technology. "No other Graco businesses or assets are included in the transaction with Carlisle," Graco officials said.
Once complete the deal will satisfy a "final order" issued Monday by the Federal Trade Commission.
While Monday's final order gave Graco 180 days in which to sell the unit, the FTC had warned Graco as far back as May 2012 that a spinoff was probably necessary because of anti-competitive concerns.
In the meantime, the FTC ordered that the liquid finishing business be run separately under the guidance of an FTC trustee. It will continue to operate separately until the sale to Carlisle is complete. The deal is expected to close by March next year.
While Graco was ordered to sell the former Illinois Tool Works business that makes liquid paint and coating equipment, it was allowed to keep Gema, the former ITW unit that makes powder coatings equipment for automakers and other manufacturers.
Graco paid $650 million for both businesses. It spent $422 million for the liquid finishing unit and about $228 million for Gema.
In an interview with the Star Tribune, Elizabeth Piotrowski, spokeswoman for the FTC's Bureau of Competition, acknowledged that the liquid finishing division was the bulk of what Graco had hoped to obtain when it originally executed the deal with Illinois Tool Works in 2012. But the business "raised competitive concerns for us" as it would have merged two of the nation's largest makers of auto paint equipment, Piotrowski said.
In written statements, Graco CEO Patrick McHale acknowledged that the forced divestiture was "disappointing" but said Graco was pleased to keep Gema. "The Gema business is a strong performer and an outstanding strategic addition to our portfolio," he said. "We are happy to have Gema as part of Graco and are looking forward to continuing to build upon its strengths."
McHale said he will discuss more about the liquid finishing divestiture on Oct. 23, when Graco posts its quarterly earnings.
The first deal between Graco and Illinois Tool Works had been the largest in Graco's history. The division sale to Carlisle will be its next largest deal. Graco spokesman Bryce Hallowell said that the FTC's forced divestiture will not deter future acquisitions. "If we find the right strategic fit, we will go after it," Hallowell said. "We have a balanced capital deployment strategy that includes acquisitions."
Graco shares rose 1.2 percent on Wednesday, amid a broader market rally.