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Crown Cork & Seal

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  1. Crown Cork & Seal Take-aways

  2. 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

  3. 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

  4. 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

  5. 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

  6. … 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

  7. 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

  8. Overview • While industry analysis indicated that the container industry was extremely competitive • We saw that CC&S prospered in spite of this.

  9. 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

  10. 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