Crown Cork & Seal Company, Inc.

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Crown Cork & Seal Company, Inc.

One Crown Way
Philadelphia, Pennsylvania 19154-4599
U.S.A.
Telephone: (215) 698-5100
Toll Free: (800) 523-3644
Fax: (215) 698-5201
Web site: http://www.crowncork.com

Public Company
Incorporated: 1927
Employees: 38,459
Sales: $8.30 billion (1998)
Stock Exchanges: New York Paris
Ticker Symbol: CCK
NAIC: 322214 Fiber Can, Tube, Drum, and Similar Products Manufacturing; 326160 Plastics Bottle Manufacturing; 326199 All Other Plastics Product Manufacturing; 332115 Crown and Closure Manufacturing; 332116 Metal Stamping; 332431 Metal Can Manufacturing; 332439 Other Metal Container Manufacturing; 333510 Metal working Machinery Manufacturing

Crown Cork & Seal Company, Inc. is one of the world’s leading packaging manufacturers, making one out of every five beverage cans used in the world and one out of every three food cans used in North America and Europe. In addition to making metal food and beverage cans, Crown Cork also produces other metal packaging, including aerosol cans, specialty packaging, can ends, and closures and crowns. The company also makes plastic containers for beverages, food, household and industrial products, personal care products, cosmetics and fragrances, and medical and pharmaceutical products; composite packaging, such as that used for frozen juice concentrate; and can making equipment. With 223 plants located in 49 countries, Crown Cork derives about 60 percent of its revenues from outside the United States, with almost three-fourths of non-U.S. revenues derived in Europe. The company’s position as a global packaging powerhouse was largely gained through an aggressive program of acquisition launched in 1989, which increased net sales from $1.9 billion to $8.3 billion by the late 1990s.

Early History: From Crowns to Cans

The company traces its origins to 1892 when William Painter invented the “crown cork,” a metal crown used to package soft drinks and beer in bottles. Painter soon started the Crown Cork & Seal Company of Baltimore. He quickly expanded the company overseas and by the time of his death in 1906 the company had manufacturing operations in Germany, France, the United Kingdom, Japan, and Brazil. After recovering from the disruptions of World War I, Crown Cork survived the Prohibition era by shifting its production from beer to soft drinks.

In 1927 the company was incorporated in New York City as Crown Cork & Seal Company, Inc. following its merger with New Process Cork Company Inc. and New York Improved Patents Corporation. The following year the company formed the Crown Cork International Corporation as a holding company for subsidiaries engaged in bottle crown and other cork business outside the United States. Crown Cork’s early entry into the foreign market gave Crown Cork an advantage over its competitors in the container and closure fields.

Crown Cork did not even venture into the can making business until 1936 when it purchased the Acme Can Company and began building its first large can plant in Philadelphia under the name Crown Can. While the middle of the Great Depression would seem to be the worst possible time to enter a capital-intensive industry, Crown’s can operation was successful right from the start. Processed canning was quickly taking the place of home canning as the preferred way to preserve and store perishable goods. For this reason the container industry—for most of the 20th century—remained immune to the economic cycles that plagued most other types of businesses, industrial or otherwise.

Late 1950s: Connelly and the Turnaround

Crown Cork & Seal was an enigma within the container business because it had achieved financial results that contradicted industry logic. Profit margins in can manufacturing had been small and shrinking for decades, and can makers like American and Continental had been relying on diversification and economies of scale to create profits. Crown Cork & Seal, on the other hand, had neither expanded into noncontainer fields nor sought to augment its own can making program by purchasing other small can operations. Yet it managed to maintain an earnings growth rate of 20 percent a year. How did it do this?

The answer can be traced back to 1957, when John F. Connelly, an Irishman and son of a Philadelphia blacksmith, became its president. At that time Crown Cork lacked strong leadership and was dangerously close to bankruptcy. It suffered a first-quarter loss of over $600,000, and Bankers Trust was calling in a $2.5 million loan, with an additional $4.5 million due by the end of the year.

Connelly took dramatic measures. He halted can production altogether and filled the company’s remaining orders with a large stockpile of unpurchased cans that had been allowed to accumulate. The customers did not object, and the money saved by selling old inventory instead of producing new cans brought Crown Cork close to solvency. In addition, unprofitable and unpromising product lines, such as ice cube trays, were immediately discontinued.

Connelly also reduced overhead costs, particularly those incurred by redundant labor. In one 20-month span the payroll was cut by 25 percent, with pink slips issued to managers and unskilled workers alike. The moves were drastic but necessary. By the end of 1957 the company was making both cans and profits. The following year Crown Cork moved its corporate headquarters to Philadelphia.

Once the initial bankruptcy crisis had passed, Connelly directed Crown Cork & Seal with renewed energy into two areas within which Crown had traditionally held an advantage: aerosol cans and foreign container markets. In the years immediately preceding Connelly’s tenure, the company, while not neglecting these markets, had not pursued them with the vigor they warranted.

Crown Cork & Seal had pioneered the aerosol can in 1946 and Connelly was shrewd enough to recognize its potential. Hair spray, bathroom cleaning supplies, insecticides, and many other household products would come to be staples for the American consumer and would be marketed in aerosol dispensers.

In 1963, for example, Crown installed two aerosol can product lines in its Toronto factory, thinking that it would take the market five years to absorb the output. Within a year, however, another plant was required to handle the orders. A decade later, the same situation was repeated in Mexico. Only in the late 1970s and 1980s, when the negative environmental impact of aerosol cans became widely known (it was discovered that aerosol containers expel fluorocarbons which destroy the earth’s fragile ozone layer), did Crown begin to reexamine this sector of its business. The company was among the first to develop an aerosol can that did not propel fluorocarbons into the atmosphere.

Connelly invested considerable capital to reclaim Crown’s preeminence overseas in closures and cans. Between 1955 and 1960 the company received what were called “pioneer rights” from many foreign governments seeking to build up their industrial sectors. These “rights” gave Crown first chance at any new can or closure business being introduced into these developing nations. This kind of leverage permitted the company to make large profits while using industrial equipment that was, by U.S. standards, obsolete. Moreover, the pioneer rights allowed Crown to pay no taxes for up to ten years.

Crown’s international operations were managed and staffed only by nationals of each country, with no Americans on Crown’s payroll outside the United States. Connelly sent the foreign plants outdated but still-functioning equipment and let them begin. Crown profited from its disposal of antiquated machinery and created a far-ranging network of semiautonomous subsidiaries in the process.

1960s Through 1980s: Conservative Management

In the early 1960s, the can industry was losing more and more ground to the nonreturnable bottle. It appeared that cans would never be able to capture the lion’s share of the beverage container market. For this reason American Can and Continental began experimenting with large-scale diversification into noncontainer fields. Crown Cork, however, did not follow the example; in fact, Connelly went against the prevailing wisdom and entrenched Crown Cork still further into the consumer product can business, spending $121 million on a capital improvement program initiated in 1962.

In 1963, just as the can making industry was experiencing its first recession in decades, the pulltab poptop was introduced. In the words of one can maker at the time, the new and seemingly simple innovation made opening a can “as easy as pulling the ring off a grenade, and a lot safer.” The new pulltab opener revolutionized the industry while helping to dramatically increase canned beverage consumption. At the same time, Americans began drinking more beer and soft drinks than ever before, and the can industry experienced a seven-year period of unprecedented growth. Crown Cork, an early entrant in the pulltab can market, performed even better than American Can and Continental, and its year-to-year profits increased by double digit percentages.

Company Perspectives:

We owe our success to a legacy of leadership and invention that began in 1892 when our founder, William Painter, invented a better way to package soft drinks and beer. Painter’s vision revolutionized the bottling industry. His ingenuity, and the leadership of those who came after him, helped to build Crown Cork & Seal into the world-class company it is today.

In the early 1970s the beverage can market leveled out, with many of the major brewers and soft drink producers developing facilities to manufacture their own cans. A number of can companies, particularly American and Continental, did not adjust well to the diminishing growth in beverage can demand. They were overextended and operating at a greater capacity than necessary. Crown Cork, which did not rely as heavily on can customers like Schlitz and Pepsi, was not as severely affected when beverage companies began manufacturing their own cans. Furthermore, Crown’s foreign enterprises, which were accounting for close to 40 percent of total sales, were expanding rapidly. They more than compensated for any domestic decrease in revenues. Crown also became involved in the printing aspect of the industry by acquiring the R. Hoe & Company metal decorating firm in 1970. With this addition to its operation, Crown had the equipment necessary for imprinting color lithography upon its cans and bottle caps. By 1974 Crown had a consolidated net profit of over $39 million—double that of its 1967 results. By 1977 net sales had reached $1 billion.

The first widespread production of two-piece aluminum cans began in the mid-1970s. Aluminum was relatively expensive, but simpler to manufacture, lighter for the consumer, and recyclable. Connelly, however, once again went against industry trends. Just as he had refused to participate in the diversification trend years before, he steered Crown Cork clear of the aluminum two-piece can. He decided instead to concentrate on the old-style three-piece steel can that had been the mainstay of the industry for years. Many industry analysts regarded this strategy as particularly risky since the Food and Drug Administration had indicated that it might outlaw the three-piece can because the lead used to solder the three seams of the can was considered a health hazard. To circumvent this problem Crown began welding rather than soldering its cans.

Connelly was against switching from steel to aluminum for two reasons. First, by relying on the steel can the company was relieved of the high research and development costs necessary for changing to aluminum can manufacturing. Second, Connelly realized that there were only a handful of corporations selling aluminum in bulk. This meant that the can makers would be paying a premium price for their raw materials. Crown, by using steel, could play the various steel producers off one another and drive the price of its materials down. The strategy worked, and Crown’s company was making profits while his larger and more progressive competitors spent hundreds of millions of dollars on retooling for aluminum cans.

Connelly, it seemed, made very few mistakes. In all of his years as president, the company never suffered a quarterly loss and was virtually debt-free. During the 1980s, when competitors were spending and buying themselves into debt, Crown sat conservatively waiting. By the end of the 1980s the company was ready to position itself as a major player in the industry, taking advantage of weak economies and buying competitors’ assets at low prices.

1990s: Acquiring Its Way to the Top

The man that lead Crown’s amazing growth in the 1990s was not Connelly, but his protege, William J. Avery. Avery joined Crown in 1959 as a management trainee and then worked in manufacturing and marketing. Connelly watched A very’s potential grow and groomed him to take over the company. One day, Connelly, who was described as an “ultraconservative, tight-lipped, and tightfisted boss,” called Avery into his office and told him to stop being intimidated. Said Avery in a 1993 article in Financial World, “He told me, ‘Bill, I am very disappointed in you. You have to set your sights higher. You have to think of taking my job.’” In 1989, after a period of diminishing health, Connelly died and Avery took over the company.

Avery remarked in Financial World, “When I became president in 1989, I had to light a fire and get the company going again. The company’s growth had slowed down in the 1980s. John Connelly’s health was not good, the company had no debt and we were very vulnerable to a takeover.” Avery began acquiring companies at a rapid pace. In fact, in five years he purchased 20 businesses with combined sales in the billions. Under Avery, Crown’s revenues doubled to $3.8 billion in 1993 and reached almost $4.5 billion in 1994.

Key Dates:

1892:: William Painter invents the “crown cork,” and soon starts the Crown Cork & Seal Company of Baltimore.
1927:: Company is incorporated in New York City as Crown Cork & Seal Company, Inc. following its merger with New Process Cork Company Inc. and New York Improved Patents Corporation.
1936:: Acme Can Company is purchased, marking entry into can making.
1957:: John F. Connelly takes over presidency and turns the company around.
1958:: Company moves its corporate headquarters to Philadelphia.
1962:: Company spends $121 million on a capital improvement program.
1970:: R. Hoe & Company, a metal decorating firm, is acquired.
1977:: Net sales reach $1 billion.
1989:: William J. Avery takes over company leadership.
1989–91:: Continental Can’s Canadian, U.S., and overseas plants are purchased in three deals, costing a total of $791 million.
1992:: Company pays $519 million for CONSTAR International, Inc., a leading maker of plastic containers for beverages, food, household items, and chemicals.
1993:: Cleveland-based Van Dorn Company, a maker of metal, plastic, and composite containers, is acquired.
1996:: $5.2 billion acquisition of France’s Carnaud-Metalbox S.A. is completed, vaulting Crown Cork into the top position in the global packaging market.

Avery approached newer markets in developing countries cautiously through joint ventures. The acquisition of Continental Can’s U.S., Canadian, and overseas plants where done in three deals from 1990 to 1991. It cost Crown $791 million, but gave it several foreign joint ventures and put the company in Korea, Saudi Arabia, Hong Kong, Venezuela, and China, where many of its U.S. competitors were not. This purchase brought in $2 billion in new sales, almost doubling Crown’s size. Along with this purchase came Continental’s technical center located outside of Chicago. Under Connelly, spending for research and development was almost nonexistent. But by the late 1980s, Crown’s customers wanted more than just lower prices; they also wanted new products such as lighter weight, custom-designed cans and specific metal coatings. Continental’s research center gave Crown the ability to develop new cans to meet their specific needs.

In October 1992, Crown paid $519 million for CONSTAR International, Inc., a leading maker of plastic containers for beverages, food, household items, and chemicals. In April 1993, Crown acquired the Cleveland-based Van Dorn Company, a $314 million maker of metal, plastic, and composite containers for a variety of industries. The total merger was valued at $175 million and enabled Crown to improve its economies of scale, as well as add to its technological and marketing expertise.

Other ventures during this time included an agreement in China with Shanghai Crown Maling Packaging Co. Ltd. to manufacture aluminum beverage cans and a joint venture with a Vietnamese company to produce two-piece aluminum beverage cans. In 1994 Crown Cork ranked as the world’s second largest aluminum can maker with the expansion of its Aluplata facility near Buenos Aires, which included the addition of a second can line capable of producing 1,600 cans a minute, for a total of more than 800 million cans a year. In 1995 Crown announced that it was building a new $21.3 million corporate headquarters in Philadelphia; it moved into the new quarters in 1997.

In May 1995 Crown Cork announced that it would acquire France’s CarnaudMetalbox S.A. One of the largest packaging companies in Europe and the number one maker of metal and plastic packaging on that continent, Carnaud was formed in 1989 from the merger of Groupe Carnaud S.A. of France and MB Group PLC of the United Kingdom. The deal, which was valued at $5.2 billion in stock and debt, was not completed until February 1996 thanks to an in-depth antitrust investigation launched by European Union authorities. The antitrust officials finally approved the takeover after the companies agreed to divest several aerosol can operations in Europe; the facilities were subsequently sold in September 1996 to U.S. Can Corporation for $52.8 million. Meantime, Crown sold its U.S.-based paint- and oblong-can operations to BWAY Corporation.

The completion of the Carnaud purchase vaulted Crown Cork into the top position in the global packaging market. The combined operations seemed to fit nearly perfectly, with Crown a major player in the United States, Carnaud a major player in Europe, and both companies with small but growing presences in Asia. The deal also provided Crown with a foothold in the specialty packaging area of cosmetics and perfume packaging, such as lipstick cases, mascara applicators, compacts, and fragrance pumps; this sector was a desirable one because of its higher profit margins. The acquisition also proved a boon for Crown Cork shareholders as the company resumed payment of a cash dividend in March 1996, the first such payment since August 1956; under Connelly, the company had adopted a policy of using cash to repurchase common shares instead of issuing cash dividends.

Crown Cork anticipated being able to wrest about $100 million in annual savings by eliminating jobs and closing plants in the aftermath of the Carnaud acquisition. In 1996 the company shuttered 40 plants and regional administrative offices, reorganized an additional 52 plants, and reduced the combined workforce by 6,500. Further restructurings followed during the next three years, including the closure of 13 additional factories and a further elimination of 2,900 jobs during 1998. Crown also sold its Crown-Simplimatic business, which was involved in manufacturing various packaging machinery, to a management-led group in 1997.

Even with these attempts to increase efficiency and divest noncore operations, Crown Cork saw its profits fall in the late 1990s, at the same time that revenues were flat. There were multiple reasons for the setback. Aluminum producers cut output and raised prices starting in 1994. The strength of the U.S. dollar reduced the value of overseas sales—which made up 60 percent of Crown’s overall sales in the late 1990s—following conversion to the U.S. dollar. Crown also faced a formidable new rival starting in May 1997 when Pechiney S.A. and Schmalbach-Lubeca AG spun off their can making operations into a new venture called Impress Metal Packaging Holdings. Impress soon slashed can prices, forcing Crown to follow suit. The question Crown Cork & Seal faced as it entered the 21st century was whether or not its performance in the late 1990s represented only a temporary setback. The company appeared to be counting on another round of industry consolidation leading to fewer competitors and to a condition wherein Crown could raise prices and realize the profits it had anticipated when it had absorbed Carnaud.

Principal Subsidiaries

Crown Cork & Seal Company (PA) Inc.; Pennsylvania Crown Consultants, Inc.; Nationwide Recyclers; CONSTAR, Inc.; AH Packaging Co.; CONSTAR INTERNATIONAL INC; CarnaudMetalbox Enterprises, Inc.; CarnaudMetalbox Investments (USA), Inc.; CarnaudMetalbox Holdings (USA), Inc.; Risdon - AMS (USA), Inc.; Zeller Plastik, Inc.; Crown Cork & Seal Holdings, Inc.; Crown Cork & Seal Technologies Corporation; Crown Cork & Seal Company (USA), Inc.; Crown Financial Management, Inc.; Crown Overseas Investments Corporation; Crown Beverage Packaging, Inc.; Crown Cork de Puerto Rico, Inc.; Central States Can Company of Puerto Rico, Inc.; Aluplata S.A. (Argentina); Crown Cork de Argentina S.A.; Crown Cork & Seal (Barbados) Foreign Sales Corporation; Crown Cork Company (Belgium) N.V.; Crown Cork Holding Company (Belgium); Speciality Packaging Belgie NV (Belgium); Crown Brasil Holding Ltd. (Brazil); Crown Cork Embalagens S.A. (Brazil); Crown Cork do Nordeste Ltd. (Brazil); Crown Cork Tampas Plasticos, S.A. (Brazil); Crown Cork & Seal Canada Inc.; Risdon - AMS (Canada) Inc.; Crown Cork de Chile, S.A.I.; Beijing CarnaudMetalbox Co., Ltd.; Beijing Crown Can Co., Ltd. (China); CarnaudMetalbox Huapeng (Wuxi) Closures Co., Ltd. (China); Foshan Crown Can Company, Limited (China); Foshan Crown Easy-Opening Ends Co., Ltd. (China); Huizhou Crown Can Co., Ltd. (China); Shanghai Crown Packaging Co., Ltd. (China); Jiangmen Zeller Plastik, Ltd. (China); Crown Litometal S.A. (Colombia); Crown Colombiana, S.A. (Colombia); Crown Pakkaus OY (Finland); Astra Plastique (France); Risdon S.A. (France); CarnaudMetalbox S.A. (France); CarnaudMetalbox Group Services (France); CMB Plastique SNC (France); Crown Cork et Seal Finance S.A. (France); Crown Cork Company (France) S.A.; Crown Developpement SNC (France); Crown Financial Corporation France S.A.; Polyflex S.A. (France); Societe Bourguignonne D’Applications Plastiques (France); Societe de Participations Entrangers CarnaudMetalbox (France); Societe de Participations CarnaudMetalbox (France); Societe Francasie De Developpement De La Boite Boisson (France); Z.P. France; CarnaudMetalbox Deutschland GmbH (Germany); CarnaudMetalbox Nahrungsmitteldosen GmbH (Germany); CarnaudMetalbox Plastik Holding GmbH (Germany); Crown Bender (Germany) GmbH; Wehrstedt GmbH (Germany); Zeller Plastik GmbH (Germany); Zuchner Gruss Metallverpackungen GmbH (Germany); Zuchner Metallverpackugen GmbH (Germany); Zuchner Verpackugen GmbH & Co (Germany); Zuchner Verschlusse GmbH (Germany); Hellas Can Packaging Manufacturers (Greece); CarnaudMetalbox Magyarorszag (Hungary); CONSTAR International Plastics KFT (Hungary); CarnaudMetalbox Italia SRL (Italy); CMB Italcaps SRL (Italy); Crown Cork Company (Italy) S.P.A.; FABA Sud Spa (Italy); Risdon SRL (Italy); Superbox Aerosols SRL (Italy); Superbox Contenitori per Bevande SRL (Italy); Zeller Plastik Italia SPA (Italy); CarnaudMetalbox Kenya Limited; Societe Malgache D’Emgallages Metalliques (Madagascar); CarnaudMetalbox Bevcan SDN BHD (Malaysia); Crown Cork de Mexico, S.A.; Envases Generales Crown, S.A. DE C.V. (Mexico); Carnaud Maroc (Morocco); CMB Plastique Maroc (Morocco); CarnaudMetalbox NV (Netherlands); CMB Closures Benelux BV (Netherlands); CMB Promotional Packaging (Netherlands) BV; CONSTAR International Holland (Plastics) B.V. (Netherlands); Crown Cork Company (Holland) B.V. (Netherlands); Crown Cork Mijdrecht B.V. (Netherlands); Crown Cork Netherlands Holding B.V.; Speciality Packaging Nederland BV (Netherlands); CarnaudMetalbox Nigeria PLC; Zeller Plastik Philippines, Inc.; CarnaudMetalbox Gopak Sp. zo. o. (Poland); CarnaudMetalbox Tworzyna Sztuczne SP Z.O.D. (Poland); CarnaudMetalbox de Portugal; Crown Cork & Seal de Portugal Embalagens S.A.; CarnaudMetalbox (Asia-Pacific) Holdings PTE Ltd. (Singapore); CarnaudMetalbox Asia Limited (Singapore); CarnaudMetalbox Packaging PTE Limited (Singapore); CarnaudMetalbox Slovakia Spol. S.R.O.; Crown Cork Company, S.A. (Pty) Ltd. (South Africa); Crown Investment Holdings (Pty) Ltd. (South Africa); Crown Cork Company Iberica (Spain) SL; Envases CarnaudMetalbox S.A. (Spain); Envases Metalicos Manlleu S.A. (Spain); Envases Metalner S.A. (Spain); Envases Murcianos S.A. (Spain); Ormis Embalajes Espana S.A. (Spain); Risdon Productos de Metal LTDA (Spain); Crown Obrist AG (Switzerland); CarnaudMetalbox Tanzania Limited; CarnaudMetalbox (Thailand) PLC; CarnaudMetalbox Bevcan Limited (Thailand); Crown Cork & Seal (Thailand) Co., Ltd.; ZPJK (Thailand) Co., Ltd.; CarnaudMetalbox Ambalaj Sanayi (Turkey); CONSTAR Ambalaj Sanayi Ve Ticaret A.S. (Turkey); Emirates Can Company, Ltd. (Dubai, UAE) (United Arab Emirates); CarnaudMetalbox Bevcan PLC (U.K.); CarnaudMetalbox Closures PLC (U.K.); CarnaudMetalbox Engineering PLC (U.K.); CarnaudMetalbox Group UK Limited; CarnaudMetalbox Overseas Limited (U.K.); CarnaudMetalbox PLC (U.K.); CMB Bottles and Closures (U.K.); CONSTAR International U.K., Ltd.; Crown Cork & Seal Finance PLC (U.K.); Crown UK Holdings Ltd.; Speciality Packaging (UK) PLC; The Crown Cork Company Limited (U.K.); United Closures & Plastic PLC (U.K.); Zeller Plastik UK Limited; CarnaudMetalbox (Saigon) Limited (Vietnam); Vietnam Crown Vinalimex Packaging, Ltd.; CarnaudMetalbox (Zimbabwe) Ltd.; Crown Cork Company 1958 PVT Ltd. (Zimbabwe).

Principal Competitors

Alcoa Inc.; BWAY Corporation; Ball Corporation; Berlin Packaging; Century Aluminum Company; Continental Can Company, Inc.; Impress Metal Packaging Holdings; Kerr Group Inc.; Owens-Illinois, Inc.; Pechiney S.A.; Rexam PLC; Reynolds Metals Company; Schmalbach-Lubeca AG; Sealright Co., Inc.; Silgan Holdings Inc.; Tetra Laval International S.A.; Toyo Seikan Kaisha, Ltd.; U.S. Can Corporation; VIAG AG.