of label stock industry
The United States Department of Justice has filed a civil antitrust lawsuit to block the merger between UPM-Kymmene’s Raflatac subsidiary and Bemis Company’s MACtac subsidiary. The Department has also begun a separate, criminal investigation into competitive practices of the label stock industry.
UPM signed an agreement in August of 2002 to buy MACtac — Morgan Adhesives Co. — for $420 million. The European regulatory authorities formally approved the merger in October of 2002. The US government, however, concluded that the merger would result in higher prices for bulk paper label stock throughout the US.
“Our investigation has revealed that this market is already one in which competitors have sought to coordinate rather than compete,” said R. Hewitt Pate, acting assistant attorney general in charge of the Department’s Antitrust Division. “This merger would increase the likelihood that UPM and others will coordinate on bulk paper label stock prices.”
In a company statement, UPM-Kymmene said it is surprised by the lawsuit and that the company intends to “vigorously defend the acquisition.” The company also noted that “label stock prices have decreased steadily in recent years.”
The complaint, filed by the Department on April 15, lists UPM and MACtac as the second and third largest North American producers of bulk label stock for pressure sensitive paper labels in variable information printing and prime label applications. In the complaint, the Department did not identify the top supplier, referring instead to “the Leading Producer.” A Department spokesperson declined to name the company.
“The Department of Justice is referring to us right now as Leading Producer,” said Charles E. Coleman, Avery Dennison spokesman in Pasadena, CA. “We’re not mentioned by name, but one would assume that was us.” Avery Dennison markets PS materials through its Fasson Roll division.
The complaint states that “UPM and the Leading Producer have already attempted to limit competition between themselves, as reflected in written and oral communications to each other through high level executives regarding explicit anti-competitive understandings, although the extent to which these efforts have succeeded to date is not entirely clear to the United States at the present time.”
The lawsuit alleges that a Raflatac monthly report dated November 30, 2001 said, “The good news is that [the Leading Producer] seems to have taken our signal not to go below $0.20/msi [a label stock unit price].” The suit also says that UPM officials notified two label stock customers of plans to increase prices after the merger was complete.
Court proceedings for the civil antitrust lawsuit are scheduled to begin in June.
The Department refused comment on whether or not the decision to initiate a separate, criminal investigation grew out of the civil lawsuit. “The antitrust division is investigating the possibility of anti-competitive practices in the label stock industry. Beyond that, we are not commenting on the who, what, where, when, why or how,” said Christine Jacobs, Department of Justice spokesperson in Washington, D.C. “The statutes in which we operate, particularly our criminal ones, preclude us from commenting publicly.”
The Justice Department is not commenting on any aspects of the criminal investigation. Avery Dennison and Bemis Company said in statements that they expect to be issued subpoenas in connection with that probe. UPM-Kymmene issued a statement on April 23 that said, “To date, the company has not received any details of the investigation or any requests for information.”
US Justice officials apparently have a high volume of information to assess in the course of their investigation. Melanie E.R. Miller, vice president and assistant treasurer for Bemis Company, said the Department is already in possession of two million documents from Bemis. “There won’t be a whole lot more they can ask for on us. They have a lot of our documentation but obviously they want to look elsewhere in the industry and collect other documentation.”
A copy of the civil complaint can be viewed at