AG makes acquisition, extends sway in humorous cards

Chain Drug Review, Jan 19, 2009

CLEVELAND -- American Greetings Corp. has reached an agreement to acquire Recycled Paper Greetings Inc. and, in the process, opened itself up to criticism that it is trying to corner the market on humorous greeting cards.

Recycled Paper Greetings (RPG), a Chicago-based marketer known for its line of funny cards, filed for bankruptcy protection late last year.

Under the terms of the deal--called a "prepackaged" Chapter 11 filing and subject to approval by a federal bankruptcy court in Chicago--American Greetings will issue $54.7 million of new 7.375% notes due in 2016 and will pump as much as $18.4 million of cash into Recycled Paper. In July American Greetings made a $67.1 million investment in the company.

American Greetings also agreed to provide up to $10 million debtor-in-possession financing to Recycled Paper.

"The acquisition of Recycled Paper Greetings will be an excellent addition to our current product offering," American Greetings chief executive officer Zev Weiss says. "This transaction will give American Greetings an enlarged product-design capability and a compelling product offering that is expected to delight consumers and enhance productivity for our retail partners."

For their part, executives at Recycled Paper say the deal with American Greetings will secure that their company has a future.

"American Greetings has indicated they are purchasing us because they believe in our long-term growth potential based on the special consumer appeal of our products," Recycled Paper chief executive officer Jude Rake says.

"This investment by American Greetings is a testament to the creativity of our greeting cards and the outstanding customer service we provide our customers," Rake adds.

Weiss says American Greetings was attracted to RPG's witty, funny and fresh content.

"As we looked at RPG," he says, "it became clear this was a company that would help us fulfill our mission of providing innovative products and services to meet our consumers' needs to connect, express and celebrate."

Weiss' admission that adding RPG to American Greetings' portfolio will boost its position in the humorous cards market has been met with feedback from a group of investors with a stake in RPG, who say the greeting cards giant is trying to buy up the competition.

"We believe American Greetings has been engaged in a series of actions that reflect its own inability to compete effectively in the attractive humor segment of the greetings card market," says Travis Metz, a director of RPG Investment Holdings LLC and a partner at Monitor Clipper Partners.

"Through its unlawful actions, we believe American Greetings is attempting to eliminate Recycled Paper Greetings as a competitor in an effort to gain more widespread traction in the lucrative market segment in which Recycled Paper Greetings excels," he explains.

RPG Investment Holdings has filed a lawsuit in U.S. District Court in Chicago that seeks to stop the acquisition deal, according to Metz.

"We are committed to ensuring that Recycled Paper Greetings' creditors, shareholders, employees, artists and customers experience the best possible outcome in these challenging circumstances," he says. "We will continue to take actions and seek remedies to the maximum extent possible to offset the harm to competition and the unlawful actions of American Greetings. To this end, we intend to explore every possibility available to us."