Focus Is Back on Label Makers
A federal antitrust probe that ensnared label-making giant Avery Dennison Corp. of Pasadena received renewed attention Friday when a judge blocked the proposed union of two Avery rivals on antitrust grounds.
Asserting that “price competition will be diminished,” U.S. District Judge James Zagel in Chicago issued an injunction blocking the $420-million purchase of Minneapolis-based Bemis Co.’s MACtac unit by Raflatac Inc., a Fletcher, N.C., subsidiary of Finnish paper-products maker UPM-Kymmene Corp.
The companies promptly said they would abandon the deal.
The Justice Department had sued to quash the deal in April amid its investigation into competition in the market for label stock, the material from which finished labels are cut.
Avery is the leading player in the North American label stock business, with about 50% of the $5-billion market.
The agency’s suit alleged that an unnamed firm had worked with UPM “to limit competition” in the label-making business and that the company was “the leading producer” in the industry. Avery soon confirmed that it was the unnamed company.
It has a supplier-customer relationship with UPM, which sells some label stock to Avery but also competes with the U.S. company in many of the same global markets where Avery is active.
Avery wasn’t a defendant in the Bemis-UPM suit, and no charges have been filed against the company by the Justice Department.
But Friday’s ruling could be of concern to Avery shareholders and investors in other companies in the industry because it shows that “there’s a potential antitrust issue here,” said Ghansham Panjabi, an analyst at Lehman Bros. in New York.
Panjabi said he thought “the government has a pretty decent case” in its antitrust arguments and added that the ruling blocking the acquisition “is going to have an impact on the stock.”
Antitrust officials at the Justice Department couldn’t be reached after the Zagel’s ruling.
Avery spokesman Charles Coleman said Friday that company executives “do not read this opinion as suggesting any future course of action one way or the other by the Department of Justice.” In a statement, Avery noted that the judge said in his decision that “the Department of Justice has stipulated that the ‘paper industry is highly competitive.’ ”
The ruling came after financial markets closed Friday.
In New York Stock Exchange trading earlier, Avery’s shares slipped 14 cents to $53.04.
After being pummeled in April, when the Justice Department probe was disclosed and some Wall Street analysts downgraded their ratings, the stock has rebounded in recent weeks.
Label stock is unfinished adhesive product sold in large rolls to companies that use it to make self-adhesive or pressure-sensitive labels for a broad range of goods.
In his decision, Zagel wrote that if Raflatac bought MACtac, then “vigorous competition is unlikely” against Avery and throughout the industry. “Consumers of the products will be damaged by paying more than they otherwise would pay,” he added.
Avery makes a variety of label and adhesive products.
The company has 20,500 employees and operations in 39 countries. It posted 2002 sales of $4.2 billion.
