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 Performance of Crown Cork & Seal vs. S&P 500
(1989 - 1997)
400
Adjusted Closing Price
(1/3/1989 = 100)
CCS
350
300
250
200
S&P 500
150
100
50
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
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 Performance of Crown Cork & Seal vs. S&P 500
(1989-present)
Adjusted Closing Price
(1/3/1989 = 100)
600
S&P 500
500
CCS + 333%
400
300
200
CCS
S&P 500 + 581%
100
Week Ending
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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
20
04
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20
03
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02
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01
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00
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19
99
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98
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97
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96
1/
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95
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94
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93
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92
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91
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90
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89
0
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
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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