FTC blocks sale of Fenway’s class ring supplier

American Achievement last November agreed to sell itself for an undisclosed sum to Jostens Inc, a subsidiary of Visant Corp, which is controlled by affiliates of KKR and DLJ Merchant Banking.

The merger would have reduced the number of major players in the class ring business to American Achievement/Jostens and rival Herff Jones Inc, according to a complaint by the FTC made public on April 17. The agency pointed to the difficulty of making molds for rings, as well as of accessing distribution channels on school campuses as significant barriers to entry.

”Respondents now propose to reduce the Big Three to a ‘Big Two,’ eliminating robust head-to-head competition and greatly enhancing the remaining two companies’ ability to collude,” the FTC complaint said. “The result will be higher prices and lower quality and service for students across the United States.”

The FTC said the resulting market share for high school and college class rings would far exceed the concentration levels presumed likely to result in anti-competitive effects under the relevant case law and the U.S. Department of Justice and FTC Horizontal Merger Guidelines.

”The vigorous head-to-head competition between Jostens and AAC currently benefits students, as well as their parents and schools,” the FTC said. ”That competition results in lower ring prices, better warranty protection, improved services, and contributions to school programs, such as scholarship funds and educational support programs.”

Jostens and American Achievement said they would dissolve the merger agreement rather than fight the ruling.

Todd Hahn, senior counsel, Goodwin Procter, and an antitrust specialist, told Buyouts the FTC has been more aggressive pursuing antitrust cases under President Barack Obama. But he said that the limited number of players in the class ring industry probably raised a reg flag for regulators. The action doesn’t mean private equity firms should expect more trouble that usual getting antitrust clearance on deals, he said.

”It’s classic antitrust analysis,” he said. “Any time you have a three-to-two merger, especially where the FTC thinks there’s barriers to entry that would make it difficult for a smaller player…there’s going to be a challenge or at least they’ll investigate it.”

Ratings agency Moody’s called the FTC action “credit negative for American Achievement because it will not obtain the expected merger benefits and it will be forced to explore other strategic options,” the debt rating agency said on April 21. American Achievement’s credit rating is B3 stable. Under Moody’s definitions, B3 is a speculative grade for a long-term debt rating, subject to high credit risk.

The most recent Fenway Partners buyout fund remains the vintage 2006 Fenway Partners Capital III, which raised $700 million.

“We are extremely disappointed that we were unable to reach an agreement with the FTC,” Steven Parr, president and CEO of American Achievement, said in a prepared statement. ”We strongly disagree with their position.”

Looking ahead, American Achievement remains “squarely focused on executing our strategic plan and growing our business as an independent company,” Parr said. A spokesperson for Fenway Partners declined to comment.