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Crown Cork & Seal. Take-aways. Crown Cork & Seal Update. Acquisitions: 1989 — Purchases Continental Can Canada ($330M), Continental Can US ($336M) 1990 — Purchases Continental RoW ($125M) 1992 — Expansion into plastics: Constar purchased ($515 M) and Van Dorn ($175M)

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crown cork seal update
Crown Cork & Seal Update

Acquisitions:

1989 — Purchases Continental Can Canada ($330M), Continental Can US ($336M)

1990 — Purchases Continental RoW ($125M)

1992 — Expansion into plastics: Constar purchased ($515 M) and Van Dorn ($175M)

1993 — #2 supplier of metal containers (Pechiney #1)

1996 — Acquired CarnaudMetalBox (France) for $5.2B in stock and cash (largest acquisition of a European firm by an American one at the time)becomes #1 supplier of metal containers

crown cork seal update3
Crown Cork & Seal Update

International Expansion:

1993 — Builds beverage can and plastic cap production lines in UAE, Jordan, Argentina, and Shanghai

1994 — Expansion into Vietnam via JV with two local companies, plans to produce 400M cans per year

1994 — Announces Beijing JV, its 3rd in China

crown cork seal update4
Crown Cork & Seal Update

Management:

1989 — William Avery compensation exceeds $2M, putting him in the top quintile of Fortune 500 CEOs

 Continuing restructuring: more than two dozen plants closed between 1991 and 1995

1992 — Firm re-organized around 4 divisions: North America, International, Machinery, and Plastics

2000 — William Avery steps down

ccs performance is excellent through 1996
CCS Performance is excellent through 1996 …

CCS

S&P 500

  • Net sales increase to $8.3B in FY 96 from $1.8B in FY88
    • growth fueled mainly through acquisitions (financed by debt)
  • Net income increases to $294M in 96 from $93M in 88
but hit by a perfect storm in 1998 99
… but hit by a “perfect storm” in 1998 & 99

S&P 500

CCS + 333%

CCS

S&P 500 + 581%

  • Overcapacity in Europe (50% of sales) leads to pricing pressure
  • US Soda bottlers raise prices, stemming growth in demand
  • Higher oil prices
  • Major U.S. customer goes Chapter 11
  • Asbestos litigation
  • Credit Rating dropped to below investment grade
avery out back to the basics
Avery out, back to the basics
  • New CEO, John Conway, evokes strategy of Connelly
    • difficult to return to bare-bones corporate culture of the past
    • 2003 SGA/Sales 5.1%
  • Divested Constar International (plastics) Nov 2002
  • Focus on repairing balance sheet & paying down debt
  • Consolidation in the metal can industry
    • Post 2001, looks like a 3-firm oligopoly, with each firm selectively taking out capacity
overview
Overview
  • While industry analysis indicated that the container industry was extremely competitive
  • We saw that CC&S prospered in spite of this.
how much does company position matter
How much does company position matter?

Average Economic Profits in the Steel Industry, 1978 - 1996

ROE-Ke Spread

40%

Great Northern Iron

30%

20%

Worthington Inds

Nucor

Steel Technologies

10%

Oregon Mills

Commercial Metals

0%

Carpenter

British Steel PLC

Cleveland-Cliffs

Birmingham

Quanex

Lukens

(10%)

USX-US Steel

ACME Metals

Ampco

Inland Steel

(20%)

Armco

WHX

Bethlehem

Average Invested Equity ($B)

(30%)

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

$13

$14

$15

Source: Ghemawat, Strategy and the Business Landscape

more on company position
More on Company Position
  • Company position is intimately linked with a company’s strategy
  • While CC&S’s rivals largely adopted diversification strategies…
  • CC&S chose a focused strategy based on appealing to profitable segments of the market