Castle Harlan Partners, II, L.P.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 961-0067]

Castle Harlan Partners, II, L.P.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would require, among other things, modification of

the planned combination of two of the four major competitors in the

class rings market. The settlement resolves allegations that the

proposed purchase of the class ring businesses of both Town & Country

Corporation and CJC Holdings, Inc. by Class Rings, Inc., which is owned

by Castle Harlan, 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, by giving one firm nearly 45 percent of all

class rings sold and more than 90 percent of class rings sold in retail

stores. Under the settlement, the merger no longer includes Town &

Country's Gold Lance, Inc. class ring business, which will continue as

an independent competitor.

DATES: Comments must be received on or before December 9, 1996.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

William J. Baer, Federal Trade Commission, H-374, 6th and Pennsylvania

Ave, NW., Washington, DC 20580. (202) 326-2932.

George Cary, Federal Trade Commission, H-374, 6th and Pennsylvania

Ave, NW., Washington, DC 20580. (202) 326-3741.

Howard Morse, Federal Trade Commission, S-3627, 6th and

Pennsylvania Ave, NW., Washington, DC 20580. (202) 326-2949.

Joseph G. Krauss, Federal Trade Commission, S-3627, 6th and

Pennsylvania Ave, NW., Washington, DC 20580. (202) 326-2713.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the FTC

Home page, on the World Wide Web, at ``http://www.ftc.gov/os/actions/

htm.'' A paper copy can be obtained from the FTC Public Reference Room,

Room H-130, Sixth Street and Pennsylvania Avenue, N.W., Washington,

D.C. 20580. Public comment is invited. Such comments or views will be

considered by the Commission and will be available for inspection and

copying at its principal office in accordance with Section

4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

Analysis To Aid Public Comment on the Provisionally Accepted Consent

Order

The Federal Trade Commission (``the Commission'') has accepted for

public comment an agreement containing a consent order with Class

Rings, Inc., Castle Harlan Partners II, L.P. (``Castle Harlan''), and

the Town & Country Corporation (``Town & Country''). This agreement has

been placed on the public record for sixty days for reception of

comments from interested persons.

Comments received during this period will become part of the public

record. After sixty days, the Commission will again review the

agreement and the comments received and will decide whether it should

with draw from the agreement or make final the agreement's order.

The Commission's investigation of this matter concerns the proposed

acquisition by Class Rings, Inc., a wholly owned subsidiary of Castle

Harlan, of certain assets of Town & Country and CJC Holdings,

Incorporated (``CJC''). The Commission's proposed complaint alleges

that Town & Country and CJC are two of four major manufacturers of

class rings in the United States.

The agreement containing consent order would, if finally accepted

by the Commission, settle charges that the acquisitions may

substantially lessen competition in the manufacture and sale of class

rings in the United States. The Commission has reason to believe that

the acquisitions and agreements violate Section 5 of the Federal Trade

Commission Act and the acquisitions would have anticompetitive effects

and would violate Section 7 of the Clayton Act and Section 5 of the

Federal Trade Commission Act if consummated, unless an effective remedy

eliminates such anticompetitive effects.

The Commission's Complaint alleges that class rings are a uniquely

American phenomenon and that class ring purchasers would not switch to

other products even if prices for class rings increased significantly.

The top four manufacturers of class rings--Jostens, Inc., CJC, Town &

Country, and Herff Jones, Inc.--account for over 95% of all class rings

sold. Moreover, CJC and Town & Country combined account for over 90% of

class rings sold in retail jewelry stores and mass merchandisers. The

Complaint further alleges that new entry into class rings or expansion

by the fringe class ring manufacturers would not be timely or likely to

deter or offset reductions in competition resulting from the proposed

acquisitions. The Commission's Complaint alleges that the proposed

acquisitions would lessen competition by eliminating competition

between CJC and Town & Country, and would lead to higher prices.

The proposed order accepted for public comment contains provisions

that would prohibit Class Rings, Inc., and Castle Harlan from Acquiring

Gold Lance, Inc. (``Gold Lance''), a subsidiary of Town & Country. The

purpose of this provision is to ensure the continuation of Gold Lance

as an independent competitor in the manufacture and sale of class rings

and to remedy the lessening of competition as alleged in the

Commission's Complaint. In effect, this order is equivalent to an

injunction preventing the acquisition of Gold Lance by Class Rings,

Inc., and Castle Harlan, and keeps Gold Lance in the hands of Town &

Country, a company well positioned to compete in the marketplace.

Moreover, the proposed order prohibits Class Rings, Inc., and

Castle Harlan, for a period of ten years, from purchasing any interest

in Town & Country or any assets from Town &

[[Page 52797]]

Country used for the design, manufacture, or sale of class rings

without the prior approval of the Commission. The proposed order also

prohibits Town & Country, for a period of ten years, from purchasing

any interest in Castle Harlan or Class Rings, Inc., or any assets from

Castle Harlan or Class Rings, Inc., used for the design, manufacture,

or sale of class rings without the prior approval of the Commission.

Town & Country, however, may purchase assets from Class Rings, Inc., or

Castle Harlan totaling not more than $2 million in any twelve month

period. The purpose of these provisions is to ensure that Class Rings,

Inc. and Town & Country remain independent from each other, thereby

fostering a competitive environment for the sale of class rings.

The proposed order also prohibits Castle Harlan and Class Rings,

Inc., for a period of one year from the date this proposed order

becomes final, from employing or seeking to employ any person who is or

was employed at any time during calendar year 1996 by Gold Lance or

Town & Country in the design, manufacture or sale of class rings. The

purpose of this provision to ensure that Town & Country, through Gold

Lance, remains a viable competitor in the manufacture and sale of class

rings.

An interim agreement was also entered into by the parties and the

Commission that requires Class Rings, Inc., Castle Harlan, and Town &

Country to be bound by the terms of the proposed order, as if it were

final, from the date that Class Rings, Inc. and Castle Harlan signed

the proposed order.

The purpose of this analysis is to invite public comment concerning

the proposed order. This analysis is not intended to constitute an

official interpretation of the agreement and order or to modify their

terms in any way.

Donald S. Clark,

Secretary.

Statement of Commissioner Mary L. Azcuenaga Concurring in Part and

Dissenting in Part

In Class Rings, Inc., File No. 961-0067

Today the Commission accepts for public comments a consent

agreement resolving allegations that the proposed acquisitions by Class

Rings, Inc., a newly created subsidiary of Castle Harlan Partners II,

L.P., of certain assets of Town & Country Corp. (two subsidiaries, Gold

Lance, Inc., and L.G. Balfour, Inc.) and CJC Holdings, Inc., would be

unlawful. The proposed order prohibits the acquisition of Gold Lance.

I concur, except with respect to the prior approval provisions in

Paragraphs III and IV of the proposed order, which are inconsistent

with the ``Statement of Federal Trade Commission Policy Concerning

Prior Approval and Prior Notice Provisions'' (``Prior Approval Policy

Statement'' or ``Statement''). In its Statement, the Commission

announced that it would ``rely on'' the Hart-Scott-Rodino premerger

notification requirements in lieu of imposing prior approval or prior

notice provisions in its orders. Although the Commission reserved its

power to use prior approval or notice ``in certain limited

circumstances,'' it cited only a single situation in which a prior

approval clause might be appropriate, that is, ``where there is a

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. Of course, as

evidenced by their premerger notification report filed pursuant to the

requirements of the Hart-Scott-Rodino Act, the parties wanted to

acquire Gold Lance, but every merger case involves parties who want to

combine firms or assets.

As I understand it, the primary reason for assuming that the

parties will try again is that they seemed so much to want to

consummate this transaction. The intensity of the parties' interest in

a proposed transaction as perceived by the Commission (even assuming

that we can distinguish between the vigor of their legal representation

and the intensity of their own feelings) has no established predictive

value of the likelihood that parties will again attempt a transaction

now known to be viewed unfavorably by the FTC. In addition, the

intensity of their feelings as perceived by the Commission is unlikely

to result in an evenhanded selection of exceptions to our prior

approval policy.

It also has been suggested that one reason for imposing a prior

approval requirement is that the Commission is prohibiting the

acquisition of Gold Lance, rather than allowing it subject to a

divestiture requirement, under which the Commission supervises the

divestiture. In fact, however, the choice of remedy is not predictive

of the likelihood of recurrence. Once a divestiture has been

accomplished, the Commission has no greater ability to deter a

particular transaction than it will here.

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 significant duplicative expenditure of resources. That is one of

the reasons I dissented from the Commission's Prior Approval Policy

Statement. Dissenting Statement of Commissioner Mary L. Azcuyenaga on

Decision to Abandon Prior Approval Requirements in Merger Orders, 4 CCH

Trade Reg. Rep. para. 13,241 at 20,992 (1995). But given that we have

the policy, it seems to me incumbent on the Commission either to live

by it or to change it.\1\

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\1\ See Dissenting Statement of Commissioner Mary L. Azcuenaga

in The Vons Companies, Inc., Docket No. C-3391 (May 24, 1996).

[FR Doc. 96-25738 Filed 10-7-96; 8:45 am]

BILLING CODE 6750-01-M