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Analysis: U.S. regulators could tarnish Jostens' plan to be lord of the rings

By Diane Bartz

WASHINGTON (Reuters) - Jostens, already a titan in the market for class rings and other academic mementos, has forged a deal to buy a top rival but U.S. antitrust regulators could frown on the agreement if they think it will raise prices for the already-costly keepsakes.

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.

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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