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U.S. Approves Merger of Office Supply Giants : Stock swap: Avery International and Dennison Manufacturing will combine forces. The deal is valued at about $300 million.


Two office supply product giants, Avery International and Dennison Manufacturing, received the U.S. Justice Department's blessing Tuesday to complete a stock swap merger valued at about $300 million.

Pasadena-based Avery, with about 11,000 employees and 150 manufacturing plants around the world, and Dennison, of Framingham, Mass., agreed last May to a tax-free exchange of 1.12 shares of Avery stock for every share of Dennison stock. The new firm will be called Avery Dennison Corp. and remain based in Pasadena.

Avery, with $1.7 billion in annual sales, sells adhesives and adhesive products to a variety of retailers and manufacturers. Dennison, with sales of $770 million last year, specializes in stationery, labels, ink markers and various office products.

Avery and Dennison, which have both been suffering from depressed earnings in recent months, expect annual revenue generated by the merged company to be about $2.5 billion.

"This in an honest-to-God strategic merger," said Avery Chairman and Chief Executive Charles D. Miller. "It creates a very strong global competitor." Miller will stay in those positions in the merged company.

Dennison's chairman, Nelson S. Gifford, who will serve as vice chairman of Avery Dennison Corp., said the merged company hopes to rank No. 1 in both domestic and overseas markets for office supplies.

He said the merger comes at a time when the whole office products industry is dramatically changing. Traditional mom-and-pop stationery stores are disappearing, while chains of giant office supply discount super stores are flourishing.

Gifford and Miller both said some employees will be let go as the company looks to cut expenses and eliminate duplication of tasks. But, neither would say how many workers would be laid off.

"I think this merger is so good for the employees and shareholders, whether or not it is the best thing in the world for me is not that important," said Gifford, who plans to visit Avery Dennison headquarters for meetings about once a month. Gifford said Dennison employees, who own about 20% of the company, voted overwhelmingly in favor of the merger.

Both companies' stock prices have taken a beating, dropping about $10 a share since the merger was announced last spring. The stock market also reacted negatively on Tuesday. Avery shares closed at $16.25, down 75 cents, while Dennison stock dropped $1 a share to close at $17.75 on the New York Stock Exchange.

Analysts said while the merger will dilute the stock and carry initial expenses, it should provide long-term benefits for shareholders, employees and customers.

"Strategically, it's the right thing to do," said Mike Molloy, an analyst for Dean Witter in New York.

Molloy agreed that Avery Dennison has the potential to become first in the worldwide office products market. Currently, 3M and the Acco Office Products division of American Brands, dominate the adhesive, or "sticky paper" market.

Kim Ritrievi, an analyst for Paine Webber, said Dennison is a "company really in trouble," and should benefit from Avery's stronger management team.

Company officials and analysts agreed that there may be some initial clashes between Dennison's conservative, centralized New England style of management and Avery's more decentralized, entrepreneurial approach to doing business.

"There is a similarity in our basic business, but our cultures are not necessarily totally the same," said Avery's Miller. Miller said he has hired consultants to advise the newly merged company on how to smoothly combine operations and employees.

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