Avery Shares Slide 7% on U.S. Inquiry
Shares of Avery Dennison Corp. tumbled 7% on Tuesday after the label-making giant said it expects a subpoena in a federal criminal investigation of competitive practices in the label industry.
The Justice Department inquiry, which focuses on the market for unfinished adhesive labels, also known as label stock, surprised Wall Street. “It’s a big shocker,” said Ghansham Panjabi, an analyst with Lehman Bros., who rates Avery’s stock the equivalent of a “hold.” “People are really nervous.”
Pasadena-based Avery’s stock fell $4.19 to close at $55.94 on the New York Stock Exchange, where 2.48 million shares changed hands -- more than four times the stock’s normal trading volume.
The Justice Department confirmed it is investigating the industry, but didn’t say which companies it is looking at.
“We have an ongoing probe into the possibility of anti-competitive practices in the label stock industry,” said department spokeswoman Gina Talamona. .
In a separate action, the department filed a lawsuit Tuesday in federal court in Chicago to block a proposed $420-million acquisition of Minneapolis-based Bemis Co.’s sticker unit by UPM-Kymmene, Europe’s largest producer of label stock.
UPM, based in Helsinki, Finland, wants to buy the unit to close the gap on its biggest rival, Avery.
“Unless this transaction is blocked, the result will be increased prices for bulk paper label stock,” said R. Hewitt Pate, the Justice Department’s acting assistant attorney general in charge of antitrust.
Avery issued a statement late Monday saying the Justice Department had notified the company that it would receive a subpoena in the criminal probe. The company said the department has made no specific allegations against Avery. The company said it considers the label stock industry “highly competitive.”
“It’s really too early to tell what Avery’s exposure will be. Management was shocked about this,” said Panjabi, the Lehman Bros. analyst.
The label stock business is a $5-billion-a-year industry and Avery has a 35% market share, making it the largest player. About 40% of Avery’s $4.2 billion in annual revenue comes from sales of label stock, which is produced in large roles and is used to make such things as labels for shampoo bottles, name tags and office files.
Avery, which also makes finished products including self-adhesive stamps, reflective highway safety products and office supplies, employs more than 20,500 workers in 39 countries.
Some of the company’s largest institutional investors said Tuesday that they were caught off guard by the federal probe but remained positive about Avery. “We feel comfortable with this company,” said Todd Sullivan, a senior vice president with Starbuck Tisdale & Associates in Santa Barbara, which manages $800 million and owns 300,000 shares of Avery.
Bemis said Tuesday that it also received a letter from the Justice Department saying the company would be subpoenaed in the criminal investigation. The letter made no allegations against Bemis, said spokeswoman Melanie Miller.
Bemis closed Tuesday at $43.75, down 45 cents, on the NYSE.
3M Co., one of Avery’s leading competitors in the pressure sensitive labels industry, declined to comment on whether it had been notified that it would be served with subpoenas in the probe.
Antitrust investigations have proved troublesome for some companies. In March, auction house Sotheby’s Holdings Inc. and its rival Christie’s said they would each pay $20 million to settle antitrust litigation by consumers outside the U.S. in relation to a price-fixing scheme. The two companies had already agreed to pay $512 million to U.S. consumers after former Sotheby’s Chairman A. Alfred Taubman was convicted of conspiring with Christie’s to fix commissions on auctions during the 1990s.
