Graham Packaging Holdings Company

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Graham Packaging Holdings Company

ORIGINS

INTERNATIONAL EXPANSION

BLACKSTONE GROUP TAKES A MAJORITY INTEREST: 1998

ACQUISITION OF OWENS-ILLINOIS’S PLASTIC CONTAINER UNIT: 2004

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

ORIGINS

Graham Packaging Holdings, which touted itself as “riding the crest of conversion,” hitched its growth to the conversion from glass, paper, and metal containers to plastic packaging. As increasing numbers of manufacturers turned to plastic for their packaging needs, the company’s opportunities for growth increased commensurately. Accordingly, the company’s fortunes were wed to one of the most notable technological revolutions of the 20th century, but Graham Packaging Holdings did not sit and wait for the conversion to plastic packaging to take place. Instead, the company took an active role in advancing the vanguard of the revolution, assuming such a role from its inception, when Donald C. Graham formed a design and engineering firm in York, Pennsylvania, in 1960. Initially known as Graham Container Corp., the company operated as a regional plastic bottle developer and manufacturer, winning the business of automotive lubricant maker BP Lubricants, household products manufacturer Clorox, and household products and personal care products manufacturer Procter & Gamble during its first decade in business.

From its first decade forward, the company positioned itself as a specialist. Graham Packaging Holdings focused on serving manufacturers who required a high degree of customized packaging, thereby garnering high profit margins and realizing high growth rates. The company applied its technological expertise to the automotive, food and beverage, household cleaning, and personal care markets, designing bottles, jars, tubes, canisters, jugs, and carafes that appeared on retail shelves as dish detergent, motor oil, juices, and a slew of other products. During the 1970s, a number of new customers turned to the York-based company for their packaging needs, including Group Danone, Unilever, and Pennzoil-Quaker State, becoming the first to sample the company’s seminal technological achievement. The Graham Rotational Wheel, utilizing electromechanical, blow-molding technology, debuted during the decade, greatly improving production speed and giving engineers the ability to use virgin resins, high barrier resins, and recycled resins simultaneously with ease.

INTERNATIONAL EXPANSION

With its proprietary Graham Rotational Wheel, the company established itself as a leading producer of customized, blow-molded rigid plastic packaging, specializing in using high-density polyethylene (HDPE) resin. As new customers were signed—Colgate-Palmolive, Tropicana, and Church & Dwight were among the new additions in the 1980s—the company built new plants to the demands of its growing business, often establishing production facilities at its customers’ locations. The company also ventured overseas for the first time, evolving beyond a regional scope to become an international force in the conversion to plastic packaging. By the end of the 1980s, the company had begun to expand into Europe and South America, where many of its U.S.-based customers maintained operations. On a corporate level, the end of the 1980s also marked the creation of the organizational structure that described the company at the beginning of the 21st century. In 1989 Graham Packaging Holdings’ immediate predecessor, Sonoco Graham Company, was formed. In 1991 Sonoco Graham Company changed its name to Graham Packaging Company, by which point there were nearly 30 plants in operation in North America, France, Italy, Brazil, and the United Kingdom.

The 1990s represented a decade of profound change for the business that operated under the Graham Packaging Holdings banner. The period included the company’s first major leadership change, a change in ownership, and the greatest growth in its history. The conversion to plastic, which the company had promoted since its inception, took hold during the decade, accelerating greatly as consumers and manufacturers realized the superior functionality, safety, and economics of plastic when compared to metal, glass, and paper. The conversion to plastic occurred most rapidly in the food and beverage sector, where Graham Packaging Holdings concentrated its efforts. The company established itself as the world leader in the production of HDPE containers, supplying packaging for noncarbonated, chilled juice, juice drinks, and liquid foods that utilized HDPE resins.

It also invested heavily in a relatively new type of plastic packaging using polyethylene terephthalate (PET) resins. PET containers were used for the hot-fill packaging of nonrefrigerated shelf-stable juices and juice drinks, able to withstand a production process in which bottles were filled at between 180 degrees and 190 degrees Fahrenheit to kill bacteria and permit the shipment and display of beverages in a shelf-stable state. Between 1992 and 1998, Graham Packaging Holdings spent nearly $170 million to build a nationwide network of plants geared for PET production.

The company’s commitment to developing PET production capabilities coupled with its entrenched position in the HDPE market enabled it to attract a wealth of food and beverage business during the 1990s. New food and beverage customers during the decade included Arizona Beverages Company, Clement Pappas & Co., Coca-Cola North America, H.J. Heinz Company, Welch Foods, Inc., and The Quaker Oats Company. The influx of new customers enabled the company to record a compound annual growth rate of 88 percent in its food and beverage business between 1993 and 1998. Food and beverage sales, which accounted for roughly 3 percent of the company’s revenues at the start of the 1990s, represented nearly more than one-third of its business by the end of the decade.

COMPANY PERSPECTIVES

We design and make custom blow-molded plastic containers—bottles, jars, tubes, canisters, jugs, and carafes—for some of the best-known branded products in the world. Our attention-getting packaging is an important part of their branding. Through superior design, engineering, and technology—plus unparalleled customer service and quick and reliable delivery—we occupy a leading position in plastic containers for four market categories: food and beverage, household products, automotive lubricants, and personal-care and specialty products.

BLACKSTONE GROUP TAKES A MAJORITY INTEREST: 1998

As the company embraced the food and beverage industry, significant changes were underway at its main offices. In 1998 The Blackstone Group L.P., a private investment and advisory firm based in New York, acquired 85 percent of Graham Packaging Holdings from Donald Graham, who retained a 15 percent interest in the company he had founded 38 years earlier. Blackstone paid $208.3 million for control of the company, making an investment it eventually intended to cash in on by ushering Graham Packaging Holdings through an initial public offering (IPO) of stock.

Concurrent with the change in ownership came a change in leadership, as Graham passed the duties of chief executive officer to Phillip R. Yates, who joined the company during the early 1970s. Yates, who held a variety of executive management positions in sales, marketing, technology, and manufacturing during his tenure, was promoted from the offices of president and chief operating officer when he took over Graham’s responsibilities, assuming control over a company that had grown enormously during his stay. Graham Packaging Holdings held sway as the dominant competitor in the market for one-quart, motor-oil containers, producing more than 1.4 billion HDPE containers in 1998, a figure that represented 73 percent of the one-quart, motor-oil containers produced domestically. The company’s food and beverage business, which had achieved great strides in the years leading up to Black-stone’s investment, generated nearly 38 percent of its revenues in 1998, helping cement the company’s position as the global leader in HDPE containers and account for its role as an emerging contender in the PET market. Graham Packaging Holdings’ involvement in the household cleaning and personal care market provided a significant third dimension to its business, a market in which the company ranked as a leading supplier of HDPE custom bottles for hair care, liquid fabric care, and dish care products in North America. In all, the company operated 51 plants located in North America, Brazil, France, Germany, Hungary, Italy, Poland, Turkey, and the United Kingdom that generated $717 million in sales in 1999.

Under the ownership of Blackstone, Graham Packaging Holdings continued with its tradition of working closely with its customers. Roughly one-third of its plants were located at its customers’ manufacturing facilities, which enabled it to cultivate a collaborative relationship with its clients. The partnerships resulted in custom packaging solutions tailored to the specific needs of a client that often yielded innovative products. In 1998, for instance, the company developed a blow-molded plastic can for frozen juice concentrates marketed by Welch Foods, an HDPE container that took seven years to develop. “We developed a new molding system which produces containers at a higher speed than any of our several hundred production lines in North America,” a Graham Packaging Holdings executive explained in a March 8, 1999, interview with Plastics News. “We also developed a patented closure sealing system to meet the challenge of maintaining seal integrity through freeze-thaw cycles, while also providing easy opening.” The package, leakproof and able to withstand the rigors of a microwave, was hailed by Welch Foods’ chief executive officer in the same Plastics News article. “It’s the first packaging innovation for frozen juices since the invention of the peel strip in 1979,” said Daniel Dillon.

Graham Packaging Holdings, once under Black-stone’s control, demonstrated an eagerness to sell itself on Wall Street. The company filed with the Securities and Exchange Commission (SEC) for a $253 million IPO in mid-2000, but the offering was canceled within months. “The market was not ready for us yet,” Yates said in an October 3, 2000, interview with the York Daily News. The company made another attempt two years later, filing for a proposed $276 million IPO in May 2002. The underwriters reduced the size of the offering to $247 million shortly thereafter before canceling the IPO in July 2002, citing poor market conditions.

KEY DATES

1960:: Donald C. Graham forms Graham Container Corp.
1970s:: The company uses its proprietary Graham Rotational Wheel for the first time.
1980s:: The company expands overseas.
1998:: The Blackstone Group L.P. acquires control of the company from Donald Graham.
2004:: Graham Packaging Holdings purchases Owens-Illinois’s plastic container business for nearly $1.2 billion.
2005:: The company acquires four production plants from Swedish container maker Tetra Pak.
2006:: Warren Knowlton is appointed chief executive officer.

ACQUISITION OF OWENS-ILLINOIS’S PLASTIC CONTAINER UNIT: 2004

Graham Packaging Holdings failed to convert to public ownership during the first years of the 21st century, but the period witnessed the boldest move in its history. In 2004, Toledo, Ohio-based Owens-Illinois Inc., the largest manufacturer of glass containers in North America, was in the process of shedding assets to narrow its focus on glass manufacturing. The $6 billion-in-sales company decided to put its blow-molded plastic container business up for sale, presenting Yates and his management team with an opportunity to expand Graham Packaging Holdings’ stature in the plastic container business. Yates swooped in, agreeing in mid-2004 to pay $1.19 billion for Owens-Illinois’s plastics unit. “For our customers,” Yates noted in a July 24, 2004, interview with the York Daily Record, “this means more resources resulting in even better value in terms of products, service, and innovative technology.” The acquisition provided a massive boost to Graham Packaging Holdings’ operations, adding 31 manufacturing facilities to the company’s existing network of 57 plants and 5,000 employees to the company’s existing payroll of 4,000 workers. Revenues of the combined company were expected to total $1.8 billion in North America and $2.2 billion worldwide.

As the company focused on assimilating the Owens-Illinois acquisition into its operations, a process that was expected to be completed by late 2007, it did not shy away from additional opportunities for expansion. In March 2005, five months after completing the Owens-Illinois acquisition, the company purchased four plants from Swedish container maker Tetra Pak. The four plants manufactured plastic bottles for nutritional beverages and dairy beverages for customers in Belgium, Brazil, Turkey, and the United States. The acquisition pointed to Graham Packaging Holdings’ commitment to expand even as it applied its energies to completing the nearly two-year-long process of digesting the Owens-Illinois acquisition. “Our strategic plan,” a senior executive explained in a March 13, 2005, interview with the York Daily Record, “is to grow both organically and through acquisitions that make sense.”

The responsibility of executing Graham Packaging Holdings’ strategy passed to different hands as the company prepared for its future. In December 2006, Yates was appointed as chairman and relinquished his post as chief executive officer, paving the way for the appointment of Warren Knowlton. Knowlton spent two decades at Owens-Corning before joining Pilkington PLC, one of the world’s largest glass makers. After leaving Pilkington, Knowlton served as chief executive officer of Morgan Crucible PLC, a market leader in specialty carbon and ceramic products, the position he held when he was recruited by Graham Packaging Holdings. Knowlton took charge of a company that had displayed vigorous growth in the years immediately preceding his appointment as chief executive officer. Graham Packaging Holdings’ revenues leaped from $906 million in 2002 to $2.52 billion in 2006. Knowlton’s task centered on executing the company’s commitment to expansion and presiding over its likely conversion to public ownership.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Graham Packaging Company, L.P.; GPC Capital Corp. I; GPC Capital Corp. II; GPC Opco GP LLC; GPC Sub GP LLC; Graham Recycling Company, L.P.; Financière Graham Emballages Plastiques SNC; Financière Graham Packaging France SNC; Graham Emballages Plastiques S.A.S. (France); Graham Packaging Acquisition Corp.; Graham Packaging Argentina S.A.; Graham Packaging Belgium S.A.; Graham Packaging Canada Limited; Graham Packaging Comerc USA LLC.; Graham Packaging Company BV (Netherlands); Graham Packaging Company de Ecuador SA; Graham Packaging Company OY (Finland); Graham Packaging Consultores en Controles S.A. de C.V. (Mexico); Graham Packaging Controllers USA LLC.; Graham Packaging de Mexico S. de R.L. de C.V.; Graham Packaging do Brasil Industria e Comercio S.A. (Brazil); Graham Packaging Especialidades Tecnologicas S.A. de C.V. (Mexico); Graham Packaging Europe SNC (France); Graham Packaging European Services, Ltd.; Graham Packaging France Partners; Graham Packaging France, S.A.S.; Graham Packaging Holdings BV (Netherlands); Graham Packaging Hungary Kft.; Graham Packaging Iberica S.L. (Spain); Graham Packaging International Plastic Products Inc.; Graham Packaging Latin America, LLC; Graham Packaging Leasing S.A. de C.V. (Mexico); Graham Packaging Leasing USA LLC.; Graham Packaging Lummen NV (Belgium); Graham Packaging Minster LLC; Graham Packaging Noeux SARL (France); Graham Packaging PET Holdings S. de R.L. de C.V. (Mexico); Graham Packaging PET Technologies de Mexico S.A. de C.V.; Graham Packaging PET Technologies Inc.; Graham Packaging Plastic Products de Mexico S. de R.L. de C.V.; Graham Packaging Plastics Limited; Graham Packaging Plasticos de Venezuela C.A.; Graham Packaging Poland, L.P.; Graham Packaging Regioplast STS Inc.; Graham Packaging Technological Specialties LLC.; Graham Packaging U.K. Ltd.; Graham Packaging Villecomtal SARL (France); Graham Packaging West Jordan, LLC; Graham Packaging Zoetermeer BV (Netherlands); Graham Plastpak Plastik Ambalaj A.S. (Turkey); Industrias Graham Packaging de Irapuato S. de R.L. de C.V. (Mexico); Industrias Graham Packaging S. de R.L. de C.V. (Mexico); Lido Plast San Luis S.A. (Argentina); Lido Plast-Graham S.r.L. (Argentina); Graham Packaging Poland Sp. Z.o.o.; Polo GR Industria e Comercio, Ltda. (Brazil); Resin Rio Comercio Ltda. (Brazil); Servicios Graham Packaging S. de R.L. de C.V. (Mexico); Societa Imballagi Plastici, S.r.L. (Italy).