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 Minneapolis-based Jostens is owned by the private marketing and
publishing services firm Visant Holding Corp but has roots going
back more than a century. It agreed in mid-November to buy American
Achievement Corp in a $486 million deal.
A proliferation of brand names in the class ring and "scholastic
affinity" market obscures the fact that the business is dominated by
only a few companies. Jostens is one, and privately held Herff
Jones, which also makes robes for the U.S. Supreme Court, is
another.
American Achievement is a third major player, through its
100-year-old brand Balfour, as well as the ArtCarved and Keepsake
names. It also makes the Keystone class rings sold by Wal-Mart
Stores Inc.
In 2009, American Achievement had 55 percent of the college class
ring market and 30 percent of the high school class ring market in
the United States, the company said in a filing with the U.S.
Securities and Exchange Commission dated that year.
The proposed merger comes in a market that is in slow decline, as
the rings, which can cost hundreds of dollars, go out of fashion.
Instead of buying rings and academic mementos, today's students have
other, more glitzy ways to spend money, such as on iPods and other
gadgets, said Kevin Cassidy, an analyst for Moody's Investors
Service.
American Achievement, Jostens and Herff Jones Inc had 85 percent of
the graduation products market, including rings and yearbooks, in
2009, the most recent year for which statistics are readily
available. The other 15 percent was splintered among a variety of
small companies, American Achievement said in its filing.
It also noted that it retained 90 percent of school contracts every
year, a sign of remarkable stability.
Because of this dominance, five antitrust experts interviewed by
Reuters predicted that the Federal Trade Commission would challenge
the deal rather than let it go through untouched. Four of the
experts were at the FTC when it investigated earlier proposed
mergers of companies that make class rings.
A 2008 deal was scotched while under FTC scrutiny.
"They're going to have their hands full getting this deal through,"
said Carl Hittinger, an antitrust attorney with DLA Piper.
Claudia Higgins, a former FTC litigator now at the law firm Kaye
Scholer LLP, agreed.
"It's likely that the agency will try to challenge something with
this kind of market share," she said.
But Oliver Grawe, an economist with Berkeley Research Group, said
that the trade commission could be convinced that asset sales would
make it palatable.
"The FTC's initial position is going to be that 'we're very
skeptical of this transaction,'" said Grawe, who was at the FTC
during previous reviews of deals involving companies that make class
rings. "Would I be surprised if the FTC challenged the deal? No.
Would I be surprised if they found a remedy? No."
Under antitrust law, regulators are required to stop any deal that
they determine would result in higher prices for consumers.
Officials with Jostens and American Achievement declined comment for
this story.
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FTC SKEPTICAL OF PREVIOUS DEALS
Mostly a U.S. phenomenon, class rings have long been popular with
students and alumni to commemorate their graduation from
universities, high schools or military academies.
Otto Josten opened a jewelry and watch store in 1897 in the small
town of Owatonna, Minnesota, about 40 miles north of the Iowa
border. Jostens grew to become a leading name in the market for
commemorative rings sold on campuses and through bookstores, retail
jewelers and elsewhere.
In addition to academic keepsakes it has made rings for winners of
major professional sports leagues including Major League Baseball
and the National Basketball Association. Jostens has designed more
than two dozen Super Bowl rings for the National Football League.
Kentucky native Lloyd Garfield Balfour started making rings and
other jewelry for college fraternities and sororities in 1913, and
also made insignia for the U.S. military during World War One,
according to the company's website.
Like Jostens the company has made commemorative rings for winners of
the Super Bowl, World Series and Stanley Cup.
The FTC has a history of stepping into the market.
In 1996, it allowed Class Rings Inc to buy the class ring businesses
of both the then No. 2 maker, CJC Holdings Inc, which sold ArtCarved
rings, and the No. 3, Town and Country which owned Balfour and Gold
Lance.
To allow that deal to go ahead the commission required the companies
to hive off the Gold Lance brand, which was purchased by Jostens in
1997.
In 2008, Herff Jones and American Achievement scrapped a planned
deal during an FTC review. That review was never completed after the
deal was called off, but the agency's staff was hostile to it,
according to a person working at the agency at the time.
One possible impediment to an FTC challenge to the latest ring
combination is that colleges and high schools are unlikely to
agitate against higher class-ring prices since they generally obtain
benefits from the sales.
"They (the ring companies) give money to the schools for this
exclusivity. There have been cases where schools have had
scoreboards on their football fields paid for," said Grawe, the
Berkeley Research economist. "(Schools) don't have any substantial
and strong interest in getting a good deal for parents and kids."
The companies' decision to pursue a merger suggests that they think
the FTC is taking a more lenient view after recently approving
Office Depot Inc's purchase of rival OfficeMax Inc. and Universal
Music Group's takeover of EMI Music. Universal Music is owned by
French multinational mass media company Vivendi SA.
"I've got to imagine that the standard on marginal deals has changed
in the past few months," said David Balto, an FTC veteran now in
private practice. "The mergers that had been on the edge may have a
chance to get through."
(Editing by Ros Krasny and Matthew Lewis)
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