Illinois Tool Works Inc

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IN THE MATTER OF ILLINOIS TOOL WORKS INC.

CONSENT ORDER, ETC., INREGARD TO ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT AND SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3651. Complaint, April 23, 1996--Decision, April 23, 1996 This consent order requires Illinois Tool Works, among other things, to divest all of Hobart Brothers’ assets and businesses relating to industrial power sources and industrial engine drives to Prestolite Electric Inc. or another Commissionapproved acquirer.

Appearances For the Commission: Ann B. Malester, Christine Perez, Steven K. Bernstein and William Baer.

For the respondent: James Wooten and Stewart Hudnut, in-house counsel, Glenview, IL.

COMPLAINT The Federal Trade Commission ("Commission"), having reason to believe that respondent, Illinois Tool Works Inc., a corporation subject to the jurisdiction of the Commission, has agreed to acquire all of the capital stock of Hobart Brothers Company ("Hobart"), a corporation subject to the jurisdiction of the Commission, in violation of Section 5 of the Federal Trade Commission Act ("FTC Act"), as amended, 15 U.S.C. 45, and that such an acquisition, if consummated, would violate 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; and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows: I. RESPONDENT 1. Respondent Ilinois Tool Works Inc. ("ITW") is a corporation organized and existing under and by virtue of the laws of the state of Delaware, with its office and principal place of business located at ILLINOIS TOOL WORKS INC. 483 482 Complaint 3600 West Lake Avenue, Glenview, IIlinois. Respondent ITW is engaged in, among other things, the research, development, manufacture and sale of industrial power sources and industrial engine drives.

2. For purposes of this proceeding, respondent is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section | of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 US.C. 44.

Il. ACQUIRED COMPANY 3. Hobart is a corporation organized and existing under and by virtue of the laws of Ohio, with its principal office and place of business located at 600 West Main Street, Troy, Ohio. Hobart is engaged in, among other things, the research, development, manufacture and sale of industrial power sources and industrial engine drives.

4. Hobart is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 U.S.C. 44.

ll. THE ACQUISITION 5. On or about May 2, 1995, ITW agreed to acquire all of the issued and outstanding capital stock of Hobart, by means of a statutory merger between Hobart and ITW Acquisition Corp., a Delaware corporation which is a wholly-owned subsidiary of ITW. The transaction is valued at approximately $225 million. IV. THE RELEVANT MARKETS 6. For purposes of this complaint, the relevant lines of commerce in which to analyze the effects of the acquisition are: a. The research, development, manufacture and sale of industrial power sources, which are static arc welding power sources rated at 250 amperes and above; and Complaint 121 F.T.C.

b. The research, development, manufacture and sale of industrial engine drives, which are rotating arc welding power sources rated at 250 amperes and above.

7. For purposes of this complaint, the United States is the relevant geographic area in which to analyze the effects of the acquisition in all the relevant lines of commerce.

8. The relevant markets set forth in paragraphs six and seven are highly concentrated whether measured by Herfindahl-Hirschmann Indices ("HHI") or by two-firm and four-firm concentration ratios. 9, Entry into the relevant markets set forth in paragraphs six and seven would not occur in a timely manner to deter or counteract the adverse competitive effects described in paragraph eleven because of, among other things, the difficulty of establishing a distribution and service network and gaining brand name recognition and customer acceptance in the markets.

10. ITW and Hobart are actual significant competitors in the relevant markets set forth in paragraphs six and seven. V. EFFECTS OF THE ACQUISITION 11. The effects of the acquisition may be substantially to lessen competition and to tend to create a monopoly in the relevant markets set forth above in violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, in the following ways, among others: a. By enhancing the likelihood of collusion or coordinated interaction between or among the remaining firms in the relevant markets;

b. By eliminating direct actual competition between ITW and Hobart in the relevant markets;

c. By increasing the likelihood that consumers in the United States would be forced to pay higher prices for industrial power sources and industrial engine drives; and d. By increasing the likelihood that quality and technological innovation in the industrial power source and industrial engine drive markets would be reduced.

ILLINOIS TOOL WORKS INC. 485 482 Decision and Order .VI. VIOLATIONS CHARGED 12. The acquisition agreement described in paragraph five constitutes a violation of Section 5 of the FTC Act, as amended, 15 U.S.C. 45.

13. The acquisition described in paragraph five, if consummated, would constitute a violation of 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.

DECISION AND ORDER The Federal Trade Commission having initiated an investigation of the proposed acquisition by respondent of all of the assets and businesses of Hobart Brothers Company ("Hobart"), and the respondent having been furnished thereafter with a copy of a draft of complaint that the Bureau of Competition presented to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violations of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45; and Respondent, its attorneys, and counsel for the Commission having thereafter executed an Agreement containing a consent order, an admission by respondent of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said Agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint, or that the facts as alleged in such complaint, other than jurisdictional facts, are true and waivers and other provisions as required by the Commission's Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondent has violated the said Acts, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed Consent Agreement and placed such Agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure described in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order: Decision and Order 121 F.T.C.

1. Respondent Illinois Tool Works Inc. ("ITW") 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, IIlinois. 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER It is ordered, That, as used in this order, the following definitions shall apply:

A. "Respondent" or "JTW" means Illinois Tool Works Inc., its directors, officers, employees, agents and _ representatives, predecessors, successors and assigns, its subsidiaries, divisions, groups and affiliates controlled by Illinois Tool Works Inc., and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.

B. "Hobart" means Hobart Brothers Company, an Ohio corporation, with its principal office and place of business located at 600 West Main Street, Troy, Ohio, its directors, officers, employees, agents and representatives, predecessors, successors and assigns; its subsidiaries, divisions, groups and affiliates controlled by Hobart Brothers Company, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each. C. "Commission" means the Federal Trade Commission. D. "Acquisition" means the acquisition by respondent of all of the issued and outstanding Hobart capital stock, by means of a statutory merger between Hobart and ITW Acquisition Corp., a Delaware corporation which is a wholly-owned subsidiary of ITW. E. "Industrial power sources" means static arc welding power sources rated at 250 amperes or higher, including, but not limited to, any such power sources using inverter technology. F. "Industrial engine drives" means rotating arc welding power sources rated at 250 amperes or higher.

G. "Battery chargers" means devices used to charge industrial batteries.

ILLINOIS TOOL WORKS INC. 487 482 Decision and Order H. "Aircraft ground power units" means power conversion devices that provide power to aircraft that are on the ground. I. "Assets and Businesses" means all assets, businesses and goodwill, tangible and intangible, including, without limitation, the following:

1. All machinery, fixtures, equipment, vehicles, transportation facilities, furniture, tools and other tangible personal property; 2. All customer lists, vendor lists, catalogs, sales promotion literature, advertising materials, research materials, technical information, management information systems, software, software licenses, inventions, copyrights, trademarks, trade names (excluding the Hobart trade name), trade secrets, intellectual property, patents, technology, know-how, specifications, designs, drawings, processes and quality control data;

3. The exclusive right to use the Hobart trade name in connection with the research, development, manufacture and sale of industrial power sources and industrial engine drives. 4. Inventory;

5. Rights, titles and interests in and to the contracts entered into in the ordinary course of business with customers (together with associated bid and performance bonds), suppliers, sales representatives, distributors, agents, personal property lessors, personal property lessees, licensors, licensees, consignors and consignees;

6. All rights under warranties and guarantees, express or implied; 7. All books, records, and files; and 8. All items of prepaid expense.

J. "Hobart Industrial Welding Equipment Business" means of all of the Assets and Businesses used in the research, development, manufacture and sale by Hobart of:

1. Industrial power sources;

2. Industrial engine drives;

3. Battery chargers; and 4. Aircraft ground power units.

Decision and Order 121 F.T.C.

K. "Hobart Power Conversion Operations" means all of the Assets and Businesses used in the research, development, manufacture and sale by Hobart of:

1. Static arc welding power sources;

2. Rotating arc welding power sources;

3. Battery chargers; and 4, Aircraft ground power units.

L. "Prestolite" means Prestolite Electric Incorporated, a Delaware corporation, with its principal office and place of business located at 2100 Commonwealth Blvd., Ann Arbor, Michigan. M. "Marketability, viability and competitiveness" of the Hobart Industrial Welding Equipment assets means that the assets when used in conjunction with the assets of the acquirer are capable of operating a business which is substantially similar to the Hobart Industrial Welding Equipment Business at the time of the acquisition, with substantially similar sales levels and product lines. Il.

It is further ordered, That:

A. ITW shall divest, absolutely and in good faith, the Hobart Industrial Welding Equipment Business. The Hobart Industrial Welding Equipment Business shall be divested either: 1. Within one (1) month of the date this order becomes final, to Prestolite, pursuant to the January 17, 1996, Asset Purchase Agreement between Hobart and Prestolite as modified by the January 24, 1996, undertaking, as Confidential Appendix I. If divested to Prestolite, the Hobart Industrial Welding Equipment Business shall exclude Aircraft Ground Power Units; or 2. Within twelve (12) months of the date this order becomes final, to an acquirer that receives the prior approval of the Commission and only in a manner that receives the prior approval of the Commission. In the event that the acquirer does not choose to acquire the battery charger or ground power unit assets and businesses, because the acquirer does not need such assets in order to engage in the industrial ILLINOIS TOOL WORKS INC. 489 482 Decision and Order power source and industrial engine drive businesses, respondent shall not be required to divest such assets.

B. The purpose of the divestiture is to ensure the continuation of the Hobart Industrial Welding Equipment Business as an ongoing, viable operation, engaged in the research, development, manufacture and sale of industrial power sources and industrial engine drives, and to remedy the lessening of competition resulting from the proposed acquisition as alleged in the Commission's complaint. C. Until the Hobart Industrial Welding Equipment Business has been divested, ITW shall:

1. Maintain the marketability, viability, and competitiveness of the Hobart Industrial Welding Equipment Business, and shall not cause or permit the destruction, removal, wasting, deterioration, or impairment of any assets or business it may have to divest, except in the ordinary course of business and except for ordinary wear and tear, and it shall not sell, transfer, encumber or otherwise impair the marketability, viability or competitiveness of the Hobart Industrial Welding Equipment Business; and 2. Expend funds for research and development, quality control, manufacturing and marketing of each of the Hobart Industrial Welding Equipment Business products at a level not lower than that budgeted for the 1995 fiscal year, and shall increase such spending as is deemed reasonably necessary in light of competitive conditions. D. Upon reasonable notice from the acquirer to respondent, respondent shall provide, at no cost, such assistance to the acquirer as is reasonably necessary to enable the acquirer to design and manufacture industrial power sources and industrial engine drives in substantially the same manner and quality employed or achieved by Hobart prior to the Acquisition. Such assistance shall include reasonable consultation with knowledgeable employees of respondent and training at the acquirer's facility for a period of time sufficient to satisfy the acquirer's management that its personnel are appropriately trained in the design and manufacture of industrial power sources and industrial engine drives. Respondent shall convey all know-how necessary to design and manufacture industrial power sources and industrial engine drives in substantially the same manner and quality employed or achieved by Hobart prior to the Acquisition. However, Decision and Order 121 F.T.C.

respondent shall not be required to continue providing such assistance for more than nine (9) months. Il.

It is further ordered, That:

A. If ITW has not divested, absolutely and in good faith and with the Commission's prior approval, the Hobart Industrial Welding Equipment Business within twelve (12) months of the date this order becomes final, the Commission may appoint a trustee to divest the Hobart Industrial Welding Equipment Business. In the event that the Commission or the Attorney General brings an action pursuant to Section 5(1) of the Federal Trade Commission Act, 15 U.S.C. 45(1), or any other statute enforced by the Commission, ITW shall consent to the appointment of a trustee in such action. Neither the appointment of a trustee nor a decision not to appoint a trustee under this paragraph III. shall preclude the Commission or the Attorney General from seeking civil penalties or any other relief available to it, including a court-appointed trustee, pursuant to Section 5(1) of the Federal Trade Commission Act, or any other statute enforced by the Commission, for any failure by ITW to comply with this order. B. If a trustee is appointed by the Commission or a court pursuant to paragraph III.A. of this order, ITW shall consent to the following terms and conditions regarding the trustee's powers, duties, authority, and responsibilities:

1. The Commission shall select the trustee, subject to the consent of ITW, which consent shall not be unreasonably withheld. The trustee shall be a person with experience and expertise in mergers and divestitures. If ITW has not opposed, in writing, including the reasons for opposing, the selection of any proposed trustee within ten (10) days after notice by the staff of the Commission to ITW of the identity of any proposed trustee, ITW shall be deemed to have consented to the selection of the proposed trustee. 2. Subject to the prior approval of the Commission, the trustee shall have the exclusive power and authority to divest the Hobart Industrial Welding Equipment Business.

3. Within ten (10) days after appointment of the trustee, ITW shall execute a trust agreement that, subject to the prior approval of ILLINOIS TOOL WORKS INC. 491 482 Decision and Order the Commission and, in the case of a court-appointed trustee, of the court, transfers to the trustee all rights and powers necessary to permit the trustee to effect the divestiture required by this order. 4. The trustee shall have twelve (12) months from the date the Commission approves the trust agreement described in paragraph III.B.3. to accomplish the divestiture, which shall be subject to the prior approval of the Commission. If, however, at the end of the twelve month period, the trustee has submitted a plan of divestiture or believes that divestiture can be achieved within a reasonable time, the divestiture period may be extended by the Commission, or, in the case of a court-appointed trustee, by the court; provided, however, the Commission may extend this period only two (2) times. 5. The trustee shall have full and complete access to the personnel, books, records and facilities related to the Hobart Industrial Welding Equipment Business, or to any other relevant information, as the trustee may request. ITW shall develop such financial or other information as the trustee may request and shall cooperate with the trustee. ITW shall take no action to interfere with or impede the trustee's accomplishment of the divestiture. Any delays in divestiture caused by ITW shall extend the time for divestiture under this paragraph in an amount equal to the delay, as determined by the Commission or, for a court-appointed trustee, by the court.

6. The trustee shall use his or her best efforts to negotiate the most favorable price and terms available in each contract that is submitted to the Commission, subject to ITW's absolute and unconditional obligation to divest at no minimum price. The divestiture shall be made in the manner and to the acquirer as set out in paragraph II. of this order; provided, however, if the trustee receives bona fide offers from more than one acquiring entity, and if the Commission determines to approve more than one such acquiring entity, the trustee shall divest to the acquiring entity selected by the ITW from among those approved by the Commission. 7. The trustee shall serve, without bond or other security, at the cost and expense of ITW, on such reasonable and customary terms and conditions as the Commission or a court may set. The trustee shall have the authority to employ, at the cost and expense of ITW, such consultants, accountants, attorneys, investment bankers, business brokers, appraisers, and other representatives and assistants as are necessary to carry out the trustee's duties and responsibilities. Decision and Order 121 F.T.C.

The trustee shall account for all monies derived from the divestiture and all expenses incurred. After approval by the Commission and, in the case of a court-appointed trustee, by the court, of the account of the trustee, including fees for his or her services, all remaining monies shall be paid at the direction of ITW, and the trustee's power shall be terminated. The trustee's compensation shall be based at least in significant part on a commission arrangement contingent on the trustee's divesting the Hobart Industrial Welding Equipment Business.

8. ITW shall indemnify the trustee and hold the trustee harmless against any losses, claims, damages, liabilities, or expenses arising out of, or in connection with, the performance of the trustee's duties, including all reasonable fees of counsel and other expenses incurred in connection with the preparation for, or defense of any claim, whether or not resulting in any liability, except to the extent that such liabilities, losses, damages, claims, or expenses result from misfeasance, gross negligence, willful or wanton acts, or bad faith by the trustee.

9. If the trustee ceases to act or fails to act diligently, a substitute trustee shall be appointed in the same manner as provided in paragraph III.A. of this order.

10. The Commission or, in the case of a court-appointed trustee, the court, may on its own initiative or at the request of the trustee issue such additional orders or directions as may be necessary or appropriate to accomplish the divestiture required by this order. 11. The trustee may also divest such additional ancillary assets and businesses of the Hobart Power Conversion Operations and effect such arrangements as are necessary to assure the marketability, viability and competitiveness of the Hobart Industrial Welding Equipment Business.

12. The trustee shall have no obligation or authority to operate or maintain the Hobart Industrial Welding Equipment Business. 13. The trustee shall report in writing to ITW and the Commission every sixty (60) days concerning the trustee's efforts to accomplish divestiture.

IV.

It is further ordered, That consistent with ITW's obligation to maintain the marketability, viability and competitiveness of the ILLINOIS TOOL WORKS INC. 493 482 Decision and Order Hobart Industrial Welding Equipment Business, ITW may engage in any business other than the Hobart Industrial Welding Equipment Business, including without limitation, the welding equipment business it is currently operating through its wholly-owned subsidiary, Miller Electric Mfg. Co.

V.

It is further ordered, That within sixty (60) days after the date this order becomes final and every sixty (60) days thereafter until ITW has fully complied with paragraphs II. and III. of this order, ITW shall submit to the Commission a verified written report setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with paragraphs II. and III. of this order. ITW shall include in its compliance reports, among other things that are required from time to time, a full description of the efforts being made to comply with paragraphs II. and III. including a description of all substantive contacts or negotiations for the divestiture required by this order, including the identity of all parties contacted. ITW shall include in its compliance reports copies of all written communications to and from such parties, all internal memoranda, and all reports and recommendations concerning the divestiture.

VI.

It is further ordered, That ITW shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment, sale resulting in emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporation that may affect compliance obligations arising out of the order. VU.

It is further ordered, That, for the purpose of determining or securing compliance with this order, ITW shall permit any duly authorized representatives of the Commission: Decision and Order 121 F.T.C.

A. Access, during office hours and in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda and other records and documents in the possession or under the control of ITW, relating to any matters contained in this order; and B. Upon five (5) days’ notice to ITW, and without restraint of interference from ITW, to interview officers, directors, or employees of ITW, who may have counsel present, regarding any such matters. HUGHES DANBURY OPTICAL SYSTEMS, INC., ET AL. 495 495 Complaint