Crown, Cork & Seal Company, Inc.

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Crown, Cork & Seal Company, Inc.

9300 Ashton Road
Philadelphia, Pennsylvania 19136
(215) 6985100
Fax: (215) 6987050

Public Company
Incorporated: 1927
Employees: 22,373
Sales: $4.45 billion
Stock Exchanges: New York
SICs: 3411 Metal Cans; 3089 Plastics Products Nee; 3466 Crowns & Closures; 3569 General Industrial Machinery Nec

Once considered a sleepy producer of metal beverage crowns, Crown Cork & Seal Company, Inc., has grown to become a leading multinational corporation engaged in the manufacture of crowns and closures, a variety of food and beverage packages, and packaging machinery. In just three years Crown doubled its global sales and grew to 152 plants in 42 countries; the company now ranks as the worlds second-largest aluminum can maker and the number one company in the packaging business.

Crown Corks origins date back to 1927 when it was incorporated in New York City as a consolidation of New Process Cork Company Inc. and New York Improved Patents Corporation. The following year the company expanded its operation to include plants overseas. It formed the Crown Cork International Corporation as a holding company for subsidiaries engaged in bottle crown and other cork business outside the United States. This early entry into the foreign market gave Crown Cork an advantage over its competitors in the container and closure fields, an edge that it still holds today.

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 Depression would seem to be the worst possible time to enter a capital-intensive industry, Crowns 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, until very recently, has been immune to the economic cycles that plague most other types of businesses, industrial or otherwise.

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 an Irishman named John F. Connelly 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 companys 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 icecube 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.

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 Connellys 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 earths 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 Crowns 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 American standards, obsolete. Moreover, the pioneer rights allowed Crown to pay no taxes for up to ten years.

Crowns international operations were managed and staffed only by nationals of each country, with no Americans on Crowns 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 semi autonomous subsidiaries in the process.

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 lions share of the beverage container market. For this reason American Can and Continental began experimenting with large-scale diversification into non-container 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 percentage points.

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, Crowns 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 milliondouble that of its 1967 results.

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 Crowns 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 1990s 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.

The man that lead Crowns amazing growth in the 1990s was not Connelly, but his protege, William Avery. Avery joined Crown in 1959 as a management trainee and then worked in manufacturing and marketing. Connelly watched Averys 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 companys growth] had slowed down in the 1980s. John Connellys 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, Crowns revenues doubled to $3.8 billion in 1993 and reached almost $4.5 billion in 1994.

Avery approached newer markets in developing countries cautiously through joint ventures. The acquisition of Continental Cans 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 Crowns size. Along with this purchase came Continentals technical center located outside of Chicago. Under Connelly, spending for research and development was almost nonexistent. But by the late 1980s, Crowns customers wanted more than just lower prices; they also wanted new products like lighter weight, custom-designed cans and specific metal coatings. Continentals research center gave Crown the ability to develop new cans to meet their specific needs.

In January 1993, Crown paid $519 million for Constar International, Inc., a leading maker of plastic containers for beverages, food, household items, and chemicals. That same day, 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 worlds 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. Through a 1995 acquisition of Frances CarnaudMetalbox, Crown became number one in packaging, with more than $10 billion in sales. That same year, Crown announced that it was building a new $21.3 million corporate headquarters in Philadelphia.

Crowns aggressive acquisition strategy virtually doubled sales and capacity in the food and beverage areas. It also made Crown a national presence with the ability to serve U.S. customers from coast to coast while simultaneously establishing a very strong global position. Even with the recent growth that has catapulted Crown into the ranks of the worlds leading multinational corporations, under the leadership of Avery Crown still follows the homespun teaching of Connelly, who maintained that success breeds success: when managers work for the benefit of the stockholders, everyone is going to be successful, including the employees, suppliers, and customers.

Principal Subsidiaries

Crown Cork & Seal Company (PA.) Inc.; H-V Industries, Inc.; Northern Engineering and Machine Corp.; Volstro Manufacturing Co., Inc.; Wissota Enterprises, Inc.; Midway Tool Engineering Company, Inc.; Nationwide Recyclers, Inc.; Nationwide Coil Coating Company, Inc.; CON-STAR International, Inc.; Van Dorn Company; Crown Financial Corporation; Foreign Manufacturers Finance Corporation; Crown Cork & Seal Foreign Sales Corporation (Virgin Islands); Crown Beverage Packaging, Inc.; Automated Containers Corporation; Crown-LaWarre Precision Technologies, Inc.; Central States Can Company of Puerto Rico, Inc.

Further Reading

Crown Cork & Seal, Beverage World, February 1992, p. 18.

Crown Gets Its Company, Beverage World, January 1993, p. 22.

Crown Launches Steel Can Unit, American Metal Market, August 16, 1994, p. 5.

Davis, Tim, Crowning Achievement: Embarking on Its Second Century in Business This Year, Crown Cork & Seal Is Well Poised to Meet Its Mission of Becoming a World-Class Manufacturer, Beverage World, February 1992, pp. 66 (2).

Halbfinger, David M., Metals Companies All Made Critical 92 Acquisitions, Philadelphia Business Journal, May 31, 1993, p. Bl 1.

Khalaf, Roula, New Era, Forbes, April 26, 1993, pp. 158 (3).

Panchapakasen, Meena, Indecent Expansion, Financial World, July 6, 1993, pp. 34 (2).

Regan, Bob, Crown Cork Bids $5.2B for French Aluminum Can Firm, American Metal Market, May 24, 1995, p. 2.

_____, Crown Cork in Third China Swing, American Metal Market, November 13, 1992, p. 2.

_____, Crown Cork Plans to Expand Argentine Can Production, American Metal Market, December 22, 1994, p. 12.

_____, Crown Plans $21M HQ, American Metal Market, May 31, 1995, p. 2

Vietnamese Venture, Beverage World, September 1994, p. 16.

updated by Beth Watson Highman