Crown, Cork & Seal in 1989Name Roll no

Rajul Garg E13

Shweta Gupta E18

Amit Kariwala E21

Aakriti Rai E43

Nikita Singla E55

Ricky Sundrani E56

Crown – Overview

One of the World’s leading packaging manufacturers

Makers of 1 out of every 5 beverage cans in the World

Also produces aerosol cans, specialty packaging, can ends and crowns

223 mfg. plants situated in 49 countries

60% of revenues from outside US

Company History

1891

•An Idea for better bottle cap gives rise to Crown, Cork And Seal Company

1927

•Bought By Competitor Charles McCanus due to bankruptcy following patent expiry

1930

•Diversification into Can-Making

1957

•Bankruptcy again – Co. taken over by John Connelly

Connelly’s Strategy

Cost Efficiency and Improving

Quality

Target Markets•Domestic niche in growth segments

• International – Pioneer rights•Exits Motor Oil Can Market

Labor and Personnel•Lean and Mean•Low Salaries•Stock Option incentives

R&D•Work closely with customers•Not expend heavily on R&D

Marketing •Close ties with customers•Provide technical assistance at customer’s plant

Manufacturing•Small plants located close to customer

•Process innovation\cost reduction

• Just in Time

Financial Control•Reduce debt•No Cash dividends•Stock Repurchase

The Metal Container Industry

Represented 61% of packaged products in US in 1989

Included cans, crowns, screw caps, bottle lids etc for industrial and consumer goods

During 1980’s Aluminium can growth averaged 8% annually while steel shipment fell by average 3.1% per year

Aluminum took over steel in 1980 - 89

Industry Trends In-house Manufacturing

– Captive Plants (25% of total can output)› Followed by large brewers to reduce costs, but not widespread in soft-

drink sector

Plastics› Initially showed great growth due to light weight, handling

convenience resulting in customer acceptance› Challenges - Manufacturing difficulty, Carbonation retention,

preventing oxygen penetration, recycling problem resulted in slow growth post 1987

› Market comprised mostly of small players with few exceptions e.g. Owens Illionis

Glass› Lost cost advantage on plastic due to rising resin costs› Metal was preferred for cans due to logistical, economic,

transportation benefits etc

Metal Can Industry Structure

Dominated by 5 firms – 61% Market Share Pricing

› Extremely Competitive› Cost reduction attempts via volume discounts, over-capacity,

shrinking customer base resulted in lower operating margins

Customers› Coca-Cola, Pepsico, Anheuser Busch etc

Distribution› Cost Components – Raw Material, Direct Labour, Transport› Manufacturing plants located close to customers to minimize

transport costs› Aluminum was preferred over steel due to low shipping costs

Suppliers› Largest Aluminium Producers – Alcoa, Alcan, Reynolds Metals

Diversification & Consolidation Reasons for Diversification

› Low Profit Margins› Excess Capacity› Rising Material Costs

Diversification across› Spectrum of Rigid Containers to supply major end-users (Foods,

Beverages)› Non-Packaging Businesses (Energy, Finance)

American Can Insurance, ultimately selling off can business to Triangle Industries

Continental Energy Exploration, Research, Transportation

National Can Glass Containers, Canning etc Ball Corporation High–Technology Market

Was it finally time for CHANGE (1989)

•Growth Slow down in metal containers

•Plastic was only growing segment

•Problems in merger of America Can and National Can

Challenges

•Should Crown diversify into Plastic Containers?

•Should Crown Bid for Continental?

The Big Question

s

Analyzing raw material options Plasti

cLight weightConvenient handlingHigher acceptance with customerRecycling was not a closed loop

GlassCost advantageFaster filling speedsLight weightCompact for inventoryTransportation efficiencyBeer category had love affair with long neck bottles

Solutions Available

To go or not to go for growing opportunities in plastic closures and containers

To bid or not to bid for Continental Can

Entering plastic business either by building internal capacity or acquiring

Expanding metal container lines to reduce focus on beverage and aerosol cans

Exit or sell the business

Diversify into other packaging materials or product categories

Major Competitors

Crown versus Larger Competitors in 1983

($ mm) % of Sales ($ mm) % of Sales ($ mm) % of SalesRevenues 1298 100% 3346.4 100% 1647.5 100%COGS 1116 86% 2721 81% 1432.2 87%Gross Margin 182 14% 625.4 19% 215.3 13%SG&A 43.1 3% 501.8 15% 121.8 7%Operating Income 138.9 11% 123.6 4% 93.5 6%

CC&S American National

•CCS has higher operating income as compared to its competitors•Low investment in R&D has resulted in higher ROE for CCS (Exhibit 5)

Evaluation of Option – 5 Forces

• Acquisition of Continental Cans would reduce Supplier’s bargaining power in the metal can industry

Supplier Power

• Buyers pose a credible threat of backward integration• Continental acquisition would increase its market

share thereby reducing buyer bargaining power

Buyer Power

• Threat of Substitutes would be reduced by diversification into plastic containers

Threat of Substitutes

Evaluation of Option – 5 Forces

• Acquisition of Continental would further increase economies of scale

• Access to newer distribution channels

Potential Entrants

• Continental has a market share of 18% in the metal can industry as compared to CCS’s 7%. So the acquisition would reduce competition for CCS

Industry Competitors

Strengths• Just in time delivery• Located close to customer• High quality• Customer driven• High profit margins• Low costs• Focus on specialized

product lines• International sales

Weaknesses• Rely on metal can, not

diversified• Smaller than its competitors• Few R&D initiatives• No.4 in US

Opportunities• To be market leader can

maker• Expand globally• High potentials of growth• Few competitors• High operating

margins(sales 44%, profit 54%)

Threats• Backward and forward

integration by buyers and suppliers

• Little growth in metal can industry

• Customer base decreasing• Price pressure

Possible Benefits of the Acquisition

Post Acquisition : Double the sales to $ 3.6 billion

Analysts expect demand to increase from the soft drink business

CCS current debt to equity ratio is 12% which would rise to 38% post the acquisition

But the repayment of debt for the acquisition should be easy – Connelly’ frugality and Crowns’ strong cash flow

As a result of the acquisition, stock price could rise to $70

Parenting Matrix

Heartland Businesses (CCS acquisition of Continental Can Company)

Value Trap Business

Alien Business

Ballast Business

Feel

Benefit

Recommendation

BID FOR CONTINENTAL

CAN COMPANY TO EXPAND THE

BUSINESS

Strategic suggestions Buy out/ merge with opposition Diversify into plastic and glass business Recruit / develop knowledge base of

the plastic industry Pursue alternative customers Research and development Migrate current principles & strategies

into growing markets

What actually happened ?

• William Avery –CEO- 1989• 1990 consolidation – acquired

Continental Can • 1992 entered into plastic container

industry – acquired Constar & became leader in PET products ( plastic )

• 1993 – food canning – acquired Van Dorn• 1996 – packaging – acquired Carnuad

Metalbox

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