FTC Modifies Marriage of Class Ring Makers, Citing Risk of Higher Prices for Students

The planned marriage between two of the four major competitors in the class rings market has been modified under an agreement negotiated by the Federal Trade Commission, which said the original transaction could have raised prices to the more than 1.6 million high school and college students who purchase commemorative class rings in this country every year. Commemorative class rings range in price from $60 to more than $400, and 50 percent to 60 percent of graduating high school students buy rings each year, either through in-school representatives or at jewelry stores or other retail outlets, the FTC said. The merger, as originally structured, would have violated federal antitrust laws by combining the number two and number three firms in the market, giving the merged firm nearly 45 percent of all class rings sold, and more than 90 percent of class rings sold in retail stores. Under the settlement announced today, the merger no longer includes Gold Lance, Inc., a major producer of class rings which, the FTC said, would continue as an independent competitor.

The deal at issue was orchestrated by Castle Harlan Partners, II, L.P., a venture capital partnership which owns Class Rings, Inc., a firm organized by the New York-based investment firm, Castle Harlan, Inc. Under the originally negotiated deal, Class Rings was to purchase the class ring businesses of both Town & Country Corporation (including its L.G. Balfour Company, Inc. and Gold Lance, Inc. class ring divisions) and CJC Holdings, Inc. (which markets class rings primarily under the ArtCarved and R. Johns brand names) in a deal worth approximately $180 million. Castle Harlan then planned to operate the business under the Class Rings name. Both Town & Country and CJC also would have retained a minority interest in Class Rings. Town & Country is based in Chelsea, Massachusetts, and manufactures its Balfour and Gold Lance rings in Massachusetts and Texas, respectively. CJC is based in Austin, Texas.

According to the FTC complaint detailing the charges in this case, four firms (Jostens, Inc., CJC, Town & Country, and Herff Jones, Inc.) together account for more than 95 percent of all class ring sales in the United States. The FTC alleged that entry into the market by a new competitor on the scale necessary to defeat price increases, had Class Rings been permitted to go ahead with the original deal, would have been unlikely given the hundreds of thousands of ring molds a new company would have to buy and the specialized sales representative force it would need to develop in order to compete with these firms.

The proposed acquisition would have combined the Gold Lance and ArtCarved brands, which have competed vigorously and directly in the retail channel. Moreover, the FTC said, the class ring industry is susceptible to coordinated interaction -- in the form of customer allocation and coordinated price increases -- among leading players, in part because product lines are com parable, pricing and unit sales information is widely available, and the major firms are moving toward simplified pricing structures which will make that information even more readily avail able. And there is substantial communication between the leading firms in the market already, and evidence of exchanges of price and promotional information, the FTC alleged. The original merger would have increased the likelihood of coordinated interaction, the complaint adds.

The result, the FTC alleged, would very likely have been higher prices for students who purchase class rings.

The proposed consent agreement that the FTC has negotiated to settle these charges, announced today for public comment before the Commission determines whether to make it final, would modify the deal so as to bar Castle Harlan and Class Rings from acquiring any interest in or assets of Gold Lance, Inc. from Town & Country. Further, it would bar Town & Country from acquiring any interest in or assets of Castle Harlan or Class Rings, as part of the merger.

"In effect," the Commission said in announcing the consent, "this order is equivalent to an injunction preventing the acquisition of Gold Lance . . . and keeps Gold Lance in the hands of Town & Country, a company well positioned to compete in the marketplace."

In addition, for 10 years, Class Rings and Castle Harlan would be required to obtain FTC approval before acquiring any interest in Gold Lance or Town & Country, or any assets they use in the design, manufacture or sale of class rings. A 10-year prior approval requirement also would apply to any attempt by Town & Country to acquire more than $2 million worth of interest in or assets of Class Rings or Castle Harlan. The settlement also would bar Castle Harlan and Class Rings, for one year, from hiring anyone who was employed by Gold Lance or Town & Country in 1996 in a design, manufacturing or sales position. Finally, the agreement contains various record keeping and reporting provisions designed to assist the FTC in moni toring compliance. An interim agreement signed by Castle Harlan, Class Rings and Town & Country binds them to the terms of the proposed settlement, as if it were final, until the Com mission makes a final decision in this case.

The Commission vote to announce the proposed consent agreement for public comment was 5-0. Commissioner Mary L. Azcuenaga issued a statement in which she concurred except with respect to the prior approval provisions, which she said are inconsistent with Commission’s policy to institute prior approval provisions only where there is credible risk that a company might attempt the same merger. "The complaint does not allege any facts showing a ?credible risk’ that the parties might attempt to acquire Gold Lance a second time. Nor am I aware of any reason to think that the parties have a concealed plan or intention to circumvent the order by doing so," Azcuenaga said, adding: "I am most sympathetic to the concern that if the parties attempted to repeat the transaction in the future, the Commission might be faced with a signifi cant duplicative expenditure of resources. . . . But given that we have the [Prior Approval] policy, it seems to me incumbent on the Commission either to live by it or to change it."

An announcement regarding the consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint, proposed consent agreement, an analysis of the agreement to assist the public in commenting, and Commissioner Azcuenaga’s full statement are available from the FTC’s Public Reference Branch, Room 130, same address as above; 202- 326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov