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)
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 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 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 …
Relative
RelativePerformance
Performanceof
ofCrown
CrownCork
Cork&&Seal
Sealvs.
vs.S&P
S&P500
500
(1989 - 1997)
(1989 - 1997)
400
400
CCS
350
Adjusted Closing Price

350
Adjusted Closing Price

300
(1/3/1989 = 100)

300
(1/3/1989 = 100)

250
250
200
200
S&P 500
150
150
100
100
50
50
0
0
1/3/1989 1/3/1990 1/3/1991 1/3/1992 1/3/1993 1/3/1994 1/3/1995 1/3/1996
1/3/1989 1/3/1990 1/3/1991 1/3/1992 1/3/1993 1/3/1994 1/3/1995 1/3/1996
Week Ending
Week Ending


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
Relative
RelativePerformance
Performanceof
ofCrown
CrownCork
Cork&&Seal
Sealvs.
vs.S&P
S&P500
500
(1989-present)
(1989-present)
600
600
S&P 500
Adjusted Closing Price
Adjusted Closing Price

500
500
(1/3/1989 = 100)
(1/3/1989 = 100)

400 CCS + 333%

400

300
300

200
200
CCS
100
100 S&P 500 + 581%
0
0
989 9 0
99 0
1
99 1
2
99 2
3
99 3
4
99 4
5
99 5
6
99 6
7
99 7
8
99 8
9
99 9
0
00 0
1
00 1
2
00 2
3
00 3
4
00 4
3 /1 198 3/1 199 3/1 199 3/1 199 3/1 199 3/1 199 3/1 199 3/1 199 3/1 199 3/1 199 3/1 199 3/2 200 3/2 200 3/2 200 3/2 200 3/2 200
1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/ 1/ /3/
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Week Ending
Week Ending


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


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


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?
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
Birmingham Cleveland-Cliffs
Quanex
(10%) Lukens USX-US Steel
ACME Metals
Ampco
Inland Steel
(20%)
Armco
Average Invested Equity ($B) WHXBethlehem
(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


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