Thank you! Industry Focus: U.S. Probes Label Companies By Anna Wilde Mathews Sun

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Thank you!

Industry Focus: U.S. Probes Label Companies By Anna Wilde Mathews Sunday, April 16, 2003 POP-UP WINDOW INSTRUCTIONS THINGS ARE GETTING STICKY in the adhesive-label industry. This window may get hidden behind o windows, but it will not close unless you close it The Justice Department said it was irivestigating possible anticompetitive behavior among companies that make the material used in adhesive labels, and it planned to sue to block a merger of the industry's second- and third-largest U.S. players. The agency's antitrust division said it planned to move against the planned $420 million acquisition of Mactac, a unit of Bemis Co. of Minneapolis, Minn., by the Finnish company UPM-Kymmene Corp., which already owns Raflatac, a company in the same business. U.S. industry leader Avery Dennison Corp. said it had been informed that it would receive a subpoena as part of the broader investigation by the Justice Department's antitrust division A spokeswoman for the antitrust division confirmed that it is investigating "the possibility of anticompetitive practices in the label-stock industry," but she declined to comment on the specific focus of the probe. In a news release, the department said it intends to file a civil antitrust suit in the U.S. District Court in Chicago to block the Mactac acquisition 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 Justice Department's antitrust division, in a news release issued Monday The business that is drawing the Justice Department's scrutiny is a little-known one: the companies involved produce the basic material, or stock, that is cut up to create labels for a range of consumer products and shipping materials. Ghansham Panjabi, an analyst with Lehman Brothers, estimated that the business is worth perhaps $3 billion in the U.S., and $5.5 billion world-wide Pentti Kallio, president of UPM-Kymmene's Raflatac Group, said his company was "taken by surprise by the Justice Department's decision to file suit against the acquisition, which had already been approved by European regulators. The company is "considering what to do" next about the deal, he said. A spokeswoman for Bemis said the company also was surprised by the antitrust division's action, and "did not get any indication from them that they were going to file suit to stop this." It is up to UPM-Kymmene to decide whether to try to move forward with the acquisition, she said: "We all have to wait until the details come out." A spokesman for Avery Dennison, a maker of adhesive materials and office products based in Pasadena, Calif., said the company feels that the label-stock industry is "highly competitive," and it plans to "Tully cooperate" with the investigation UPM-Kymmene's planned cash acquisition of Mactac was announced last August. The deal would allow Bemis to get out of the label-stock industry and focus more closely on its primary business of manufacturing packaging materials. For UPM-Kymmene, a big company with its primary business in paper products, the acquisition would grant it a larger footprint in the U.S. Last year, Mactac had revenue of 499 million, out of Bemis's total of $2.4 billion. Mr. Panjabi, the Lehman Brothers analyst, estimates that Avery Dennison has perhaps 35% of the U.S. market for label stock, while Mactac represents approximately 25% and Raflatac is about 10%.

Explanation / Answer

Since the stock industry is highly competitive it must have HHI lower than 1950. (35^2+25^2+10^2) The correct option is (D).

Merger will cause the HHI = 100. The correct option is 9C).

This is an oligolpolistic type of industry. Option (A)

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