Crown, Cork and Seal in 1989
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Transcript of Crown, Cork and Seal in 1989
![Page 1: Crown, Cork and Seal in 1989](https://reader034.fdocuments.in/reader034/viewer/2022050804/5536e7234a7959ca198b4af6/html5/thumbnails/1.jpg)
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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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Parenting Matrix
Heartland Businesses (CCS acquisition of Continental Can Company)
Value Trap Business
Alien Business
Ballast Business
Feel
Benefit
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Recommendation
BID FOR CONTINENTAL
CAN COMPANY TO EXPAND THE
BUSINESS
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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
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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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Thank You