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)

Adjusted Closing Price

Adjusted Closing Price
(1/3/1989 = 100)
(1/3/1989 = 100)

400
400

CCS

350
350
300
300
250
250
200
200

S&P 500

150
150
100
100
50
50
0

0
1/3/1989
1/3/1989

1/3/1991
1/3/1991

1/3/1992
1/3/1992

1/3/1993
1/3/1993

Week Ending
Week Ending

1/3/1994
1/3/1994

1/3/1995
1/3/1995

1/3/1996
1/3/1996

Net sales increase to $8.3B in FY 96 from $1.8B in FY88

1/3/1990
1/3/1990

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

Adjusted Closing Price

Adjusted Closing Price
(1/3/1989 = 100)
(1/3/1989 = 100)

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

S&P 500

500
500

CCS + 333%

400
400
300
300
200
200

CCS
S&P 500 + 581%

100
100
0

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
Cleveland-Cliffs
Birmingham
Quanex
Lukens
(10%)
USX-US Steel
ACME Metals
Ampco
Inland Steel
(20%)
(30%)
$0

$1

$2

$3

$4

Average Invested Equity ($B)

$5
$6
$7
$8
$9
$10

Source: Ghemawat, Strategy and the Business Landscape

Armco
WHX Bethlehem
$11 $12 $13 $14 $15

More on Company Position

Company position is intimately linked with a

companys strategy
While CC&Ss rivals largely adopted diversification
strategies
CC&S chose a focused strategy based on appealing
to profitable segments of the market