[Federal Register Volume 82, Number 108 (Wednesday, June 7, 2017)]
[Notices]
[Pages 26485-26487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11733]


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FEDERAL TRADE COMMISSION

[File No. 161-0116]


The Sherwin-Williams Company and The Valspar Corporation; 
Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before June 27, 2017.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write: ``In the Matter of The 
Sherwin-Williams Company and The Valspar Corporation; File No. 161-
0116'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/swvalsparconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``In the Matter of The Sherwin-Williams Company and The 
Valspar Corporation; File No. 161-0116'' on your comment and on the 
envelope, and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: James Abell (202-326-2289), Bureau of 
Competition, 600 Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for May 26, 2017), on the World Wide Web, at 
https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before June 27, 2017. 
Write ``In the Matter of The Sherwin-Williams Company and The Valspar 
Corporation; File No. 161-0116'' on your comment. Your comment--
including your name and your state--will be placed on the public record 
of this proceeding, including, to the extent practicable, on the public 
Commission Web site, at https://www.ftc.gov/policy/public-comments.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/swvalsparconsent by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you prefer to file your comment on paper, write ``In the Matter 
of The Sherwin-Williams Company and The Valspar Corporation; File No. 
161-0116'' on your comment and on the envelope, and mail your comment 
to the following address: Federal Trade Commission, Office of the 
Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 
20024. If possible, submit your paper comment to the Commission by 
courier or overnight service.

[[Page 26486]]

    Because your comment will be placed on the publicly accessible FTC 
Web site at https://www.ftc.gov, you are solely responsible for making 
sure that your comment does not include any sensitive or confidential 
information. In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including in particular competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC Web site--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC Web site, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC Web site to read this Notice and the news release 
describing it. The FTC Act and other laws that the Commission 
administers permit the collection of public comments to consider and 
use in this proceeding, as appropriate. The Commission will consider 
all timely and responsive public comments that it receives on or before 
June 27, 2017. For information on the Commission's privacy policy, 
including routine uses permitted by the Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order (``Consent 
Agreement'') with The Sherwin-Williams Company (``Sherwin-Williams''). 
The purpose of the Consent Agreement is to remedy the anticompetitive 
effects that would result from Sherwin-Williams's proposed acquisition 
of The Valspar Corporation (``Valspar''). Under the terms of the 
Consent Agreement, Sherwin-Williams must divest Valspar's North America 
Industrial Wood Coatings Business to Axalta Coating Systems Ltd. 
(``Axalta'') or another buyer approved by the Commission. The Consent 
Agreement provides the acquirer with the manufacturing plants and other 
tangible and intangible assets it needs to effectively compete in the 
market for the manufacture and sale of industrial wood coatings in 
North America. Sherwin-Williams must complete the divestiture within 
ten days of the closing of the acquisition.
    On March 19, 2016, Sherwin-Williams agreed to acquire Valspar for 
approximately $11.3 billion, including the assumption of debt. This 
acquisition would concentrate most of the nearly $1 billion North 
American industrial wood coatings industry in two major competitors--
the combined Sherwin-Williams/Valspar and Akzo Nobel N.V. (``Akzo 
Nobel''). On May 26, 2017, the Commission issued an administrative 
complaint alleging that the acquisition, if consummated, may 
substantially lessen competition in the market for the manufacture and 
sale of industrial wood coatings in North America in violation 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.
    The Consent Agreement has been placed on the public record for 30 
days to solicit comments from interested persons. Comments received 
during this period will become a part of the public record. After 30 
days, the Commission will review the Consent Agreement and comments 
received, and decide whether it should withdraw, modify, or make the 
Consent Agreement final.

II. The Parties

    Sherwin-Williams, headquartered in Cleveland, Ohio, is one of the 
top three manufacturers of industrial wood coatings in North America. 
Sherwin-Williams supplies industrial wood coatings to a wide variety of 
customers, including manufacturers of kitchen cabinets, building 
products, and furniture (``wood products manufacturers''). Sherwin-
Williams operates three dedicated industrial wood coatings plants in 
North America.
    Valspar is one of the top three manufactuers of industrial wood 
coatings in North America. Like Sherwin-Williams, Valspar supplies 
industrial wood coatings to some of the largest wood product 
manufacturers. Valspar operates two dedicated industrial wood coatings 
plants located in North America.

III. The Manufacture and Sale of Industrial Wood Coatings in North 
America

    Absent the remedy, Sherwin-Williams's acquisition would harm 
competition in the manufacture and sale of industrial wood coatings in 
North America. Industrial wood coatings consist of a broad category of 
stains, topcoats, and sealants used during the manufacture of wood 
products such as kitchen cabinets, furniture, and building products.
    The relevant product market does not include off-the-shelf interior 
and exterior wood stains sold to retail consumers or other substrates 
such as laminates, decorative foils, films, or veneers. Industrial wood 
coatings are designed for application on high-speed manufacturing lines 
in a factory setting and are tailored to meet wood products 
manufacturers' specifications. These specifications are demanding; wood 
product manufacturers require industrial wood coatings that perform 
well along a variety of dimensions, such as resistance to abrasion and 
moisture. Wood coatings sold to retail consumers are not formulated to 
meet these specifications and are thus not economically viable 
substitutes. Since wood product manufacturers rely on finished wood for 
its appearance and to meet the demand and preferences of their own 
customers, they likewise cannot easily or quickly substitute other 
finishing materials or technologies for their finished wood products. 
Attempting to do so would result in a high risk of significant sales 
losses for these manufacturers.
    North America is the appropriate geographic market in which to 
evaluate the likely competitive effects of the proposed acquisition. 
Sherwin-Williams and Valspar sell industrial wood coatings to customers 
throughout North America. The relevant geographic market is no broader 
than North

[[Page 26487]]

America because freight costs and logistical challenges limit wood 
product manufacturers' ability to purchase significant volumes of 
industrial wood coatings from overseas.
    Currently, three firms--Sherwin-Williams, Valspar, and Akzo Nobel--
manufacture and sell most industrial wood coatings in North America. 
Collectively, these three firms control over 70 percent of the North 
American market for industrial wood coatings. The Commission often 
calculates the Herfindahl-Hirschman Index (``HHI'') to assess market 
concentration. Under the Federal Trade Commission and Department of 
Justice Horizontal Merger Guidelines, markets with an HHI above 2,500 
are generally classified as ``highly concentrated,'' and acquisitions 
``resulting in highly concentrated markets that involve an increase in 
the HHI of more than 200 points will be presumed to be likely to 
enhance market power.'' Absent the proposed remedy, the acquisition 
would increase the HHI by at least 900 points to over 2,700 for 
industrial wood coatings, resulting in a highly concentrated market.

IV. Effects of the Acquisition

    Absent relief, the acquisition would combine two of the three 
leading industrial wood coatings suppliers and pose a significant risk 
of competitive harm. The industrial wood coatings industry is a mature, 
stable industry, with relatively low growth rates and high barriers to 
entry. The acquisition would eliminate substantial direct competition 
between Sherwin-Williams and Valspar. The acquisition also would 
increase the ease and likelihood of anticompetitive coordination 
between the only two remaining major suppliers. Thus, the acquisition 
likely would result in higher prices and a reduction in services and 
innovation to customers.

V. Entry

    Entry into the market for the manufacture and sale of industrial 
wood coatings would not be timely, likely, or sufficient in magnitude, 
character, and scope to deter or counteract the likely competitive harm 
from the acquisition. The industrial wood coatings industry in North 
America enjoys significant barriers to entry and expansion including 
the high cost of building industrial wood coatings plants, the need for 
substantial technological and manufacturing expertise, and the 
significant on-site technical support requirements of large customers. 
For these reasons, entry by a new market participant or expansion by an 
existing one, would not deter the likely anticompetitive effects from 
the acquisition.

VI. The Consent Agreement

    The proposed Consent Agreement remedies the competitive concerns 
raised by the acquisition by requiring Sherwin-Williams to divest 
Valspar's North America Industrial Wood Coatings Business to Axalta or 
another buyer approved by the Commission. In addition, the Consent 
Agreement requires Sherwin-Williams to transfer the customer contracts 
currently serviced by Valspar's Industrial Wood Coatings Business to 
the buyer.
    Under the proposed Consent Agreement, Sherwin-Williams will divest 
Valspar's industrial wood coatings plants located at High Point, North 
Carolina and Cornwall, Ontario. In addition, Sherwin-Williams will 
divest the research and development facilities, warehouses, and testing 
facilities of Valspar's Industrial Wood Coatings Business. Sherwin-
Williams will also divest intellectual property, inventory, accounts 
receivable, government licenses and permits, and business records. The 
Consent Agreement limits Sherwin-Williams's use of, and access to, 
confidential business information pertaining to the divestiture assets.
    Axalta is one of the leading suppliers of industrial coatings to 
large OEMs in the automotive and general industrial markets and is well 
positioned to operate these assets as an effective competitor. Through 
the proposed Consent Agreement, Axalta will become one of the leading 
North American manufacturers of industrial wood coatings. With the 
divested assets, Axalta will be able to replicate Valspar's position in 
the market today. It will own plants capable of manufacturing a broad 
range of industrial wood coatings as well as the other assets necessary 
to compete successfully in this market. Axalta's presence will preserve 
the three-way competition that currently exists in the relevant markets 
and moderate the potential for unilateral or coordinated effects.
    Sherwin-Williams must complete the divestiture within ten days of 
the closing of the acquisition. A Monitor will monitor Sherwin-
Williams' compliance with the obligations set forth in the Order. If 
Sherwin-Williams does not fully comply with the divestiture and 
requirements of the Order, the Commission may appoint a Divestiture 
Trustee to divest Valspar's North America Industrial Wood Coatings 
Business and perform Sherwin-Williams' other obligations consistent 
with the Order.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and is not intended to constitute an 
official interpretation of the proposed Decision and Order or to modify 
its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2017-11733 Filed 6-6-17; 8:45 am]
BILLING CODE 6750-01-P