1 High Ridge Park
Stamford, Connecticut 06905
Telephone: (203) 461-7400
Fax: (203) 461-7468
Web site: http://www.meadwestvaco.com
Incorporated: 1930 as The Mead Corporation, 1888 as Piedmont Pulp and Paper Company
Sales: $8.2 billion (2004)
Stock Exchanges: New York
Ticker Symbol: MWV
NAIC: 322121 Paper (Except Newsprint) Mills
MeadWestvaco Corporation, formed in early 2002 by the merger of Mead Corporation and Westvaco Corporation, operates as a leading packaging company that serves the food and beverage, media and entertainment, personal care, cosmetic, and healthcare industries. The company also has interests in consumer and office products and specialty chemicals. MeadWestvaco has facilities in more than 29 countries and owns approximately 1.2 million acres of forestlands. In 2005, the company sold its Paper division and half of its forestlands in a $2.3 billion deal.
The History of Mead
The Mead Corporation began as Ellis, Chafflin & Company. Founded in 1846 by Colonel Daniel Mead and his partners, the company produced book and other printing papers at a mill in Dayton, Ohio. In 1856 Mead bought out his original partners with a friend from Philadelphia, Pennsylvania, forming Weston and Mead. This company became Mead and Weston in 1860, then Mead and Nixon in 1866. In 1873 Daniel Mead spearheaded a reorganization of the firm as the Mead & Nixon Paper Company, and in 1881 Mead bought out Nixon, establishing the Mead Paper Company in 1882. He immediately upgraded the Dayton mill and in 1890 purchased a facility in nearby Chillicothe, Ohio. During the first decade of its existence, Mead Paper Company averaged annual profits of $22,000, peaking at nearly $50,000 in 1891, the year of Mead's death.
In the years after Mead's death, the management of the company passed to his sons, Charles and Harry, who became president and vice-president, respectively. Despite the fact that Mead had left a thriving business, Mead Paper soon fell on hard times, owing in large part to personal overdrafts by family members amounting to more than $200,000, as well as to the substantial salaries drawn by Harry and Charles Mead and Charles's travel expense and cash accounts, which in 1900 amounted to $13,800. Combined losses for 1901 and 1902 added up to more than $36,000, and banks began calling in the company's loans. By 1904 the Teutonia National Bank instituted a suit that resulted in trusteeship of the company by bankers in Dayton, Chillicothe, and Cincinnati, Ohio.
As Mead Paper Company teetered on the brink of total collapse in 1905, the banker-trustees turned to George Mead, Harry Mead's independent and business-minded son, requesting that he take over the helm at Mead. George, then about to leave his post at the General Artificial Silk Company in Philadelphia, accepted the opportunity to rejuvenate the family company. He reorganized it as the Mead Pulp and Paper Company and was appointed vice-president and general manager. George Mead's business philosophy would influence the company substantially during his 43-year tenure.
Mead Pulp and Paper made its first public stock offering in 1906. A year later operations were consolidated at the Chillicothe mill, costing the company more than $32,000. The economic recession of 1907 and the tremendous cost of moving almost destroyed Mead once again, but the sale of the Dayton property saved the company. Finally, in 1908, the company made profits of almost $25,000, and it continued to operate in the black until the Great Depression.
Growth via Acquisitions: 1910s–40s
During the 1910s, Mead expanded through acquisition and began to maximize machine output by restricting its product lines. In 1916 Mead purchased a share in the Kingsport Pulp Corporation of Kingsport, Tennessee, and in 1917 it acquired full control of the Peerless Paper Company of Dayton. George Mead had been reducing the number of different types of paper made at Mead since his entry in 1905, when the company produced 15 different grades of paper. Seeing that profits would be maximized if each machine could concentrate on producing one type of paper rather than continually changing production methods for different papers, Mead specialized his mills as far as possible.
Toward this end, in 1917 Mead secured a five-year contract to produce magazine paper for Crowell Publishing Company. The magazine paper called for 75 percent of the Chillicothe mill's production. Consequently, Crowell remained Mead's principal customer throughout the decade. In 1918 the Management Engineering and Development Company was established in Dayton as a separate firm to supervise engineering of new Mead plants and to market Mead's engineering services to other paper companies. In 1921 the Mead Sales Company was established as a separate corporation to sell white paper produced by Mead mills and other U.S. and Canadian mills.
In 1920 Mead bought out the other owners of Kingsport Pulp. The plant began white paper production in 1923 and became a central Mead factory. Mead began to diversify its product lines in the 1920s as it started to manufacture paperboard. By 1925 Mead research led to the discovery of the semi-chemical pulping process by which wood chips from which tannin had been extracted could be converted into paperboard. Mead expanded the paperboard business in the late 1920s with the purchase of mills throughout Appalachia that produced corrugating medium from wood waste. In 1927 The Mead Paperboard Corporation was founded as a holding company for the paperboard operations, including the Sylvia Paperboard Company, The Harriman Company, The Southern Extract Company, and the Chillicothe Company.
The Mead Corporation was incorporated on February 17, 1930, and George Mead was appointed president. The company subsumed the operations of the Mead Pulp and Paper Company, The Mead Paperboard Corporation, and the Management Engineering and Development Company, although the separate legal existence of these organizations continued for some years. At that time, the company had 1,000 employees and plants in four states. In 1935 Mead's common and preferred stock were listed on the New York Stock Exchange.
During the 1930s Mead made substantial acquisitions that diversified its lines. Although concentration on a few types of paper was necessary when the company was small, Mead had grown large enough to produce a number of grades of papers profitably. Mead's own major mills had attempted to sell business, envelope, and writing papers, but they had no luck. Two major purchases were Dill & Collins in 1932 and Geo. W. Wheelwright Company in 1934. Each of these companies had established names and well-developed distribution systems. This allowed Mead to market effectively large quantities of specialty papers produced at Chillicothe as well as smaller quantities produced in the acquired mills.
In 1938 Mead entered two joint ventures in an effort to reduce its dependence on imported pulp and to enter the kraft linerboard business. With Scott Paper Company, it formed the Brunswick Pulp & Paper Company at Brunswick, Georgia to supply both parent companies. In addition, with the holding company of the Alfred du Pont estate, Almours Security Company, it built a huge pulping plant in Port St. Joe, Florida. By 1937 the Brunswick mill was producing 150 tons of pulp per day. Soon the Port St. Joe facility was yielding 300 tons of pulp and 300 tons of linerboard daily. It was widely regarded as the leading linerboard mill in the country and by 1940 was making $1 million a year before taxes. Relations with the Almours Security Company deteriorated, however, and Mead sold its share of the operation. Mead intended to launch another liner-board mill immediately, but World War II halted this plan.
In 1942 George Mead became chairman of the board and Sydney Fergusen, who had been with the company since the 1910s, became the corporation's president. In the same year, Mead purchased a small white-paper mill from the Escanaba Paper Company in Michigan's upper peninsula. Eventually the Escanaba mill would become one of Mead's largest operations. Two other acquisitions were made, in 1943, that of the Manistique Pulp and Paper Company, of Manistique, Michigan and, in 1946, that of the Columbia Paper Company in Bristol, Virginia. The Manistique plant was sold in the early 1950s, and the Virginia company was consolidated with the Wheelwright plant in 1946. Other plants bought to meet postwar demand were subsequently sold.
Although Mead had continued production at a breakneck pace to meet domestic and overseas container and paper requirements, wartime price and profit controls, as well as raw material shortages, stunted the company's growth. In 1945 Mead's assets had risen only $2.1 million from a prewar figure of $37 million.
MeadWestvaco's innovation, customer relationships and strength throughout the packaging value chain drives our leadership. From excellence in engineering unique paperboards to innovative uses of multiple materials to world-class expertise in package design, converting and systems, we deliver integrated packaging solutions throughout the world—creating value for customers, consumers and shareholders. We are a leader in consumer and office products, specialty chemicals and specialty papers, where innovation is essential to market leadership. Our businesses are dedicated to addressing customers' most pressing challenges.
Immediately following the war, however, Mead was back on course. Its well-defined postwar plan allotted $23 million for plant expansion. In the brown paper division, plans were readily revived to build a kraft linerboard plant to replace the Port St. Joe operation. Mead firmly entrenched itself in paperboard-making through its joint projects with Inland Container Corporation. The companies first collaborated in 1946 to found the Macon Kraft Company to build and operate a paperboard mill in Macon, Georgia. This was followed by successive joint mills built in Rome, Georgia, in 1951 and Phenix City, Alabama, in 1966.
Diversification Beyond Paper Products in the 1950s
Mead saw a rapid succession of presidents after Fergusen, who in 1948 became chairman of the board and handed the presidency on to Charles R. Van de Carr, Jr. In 1952 Howard E. Whittaker became president, and five years later he was replaced by Donald R. Morris. The year 1955 marked the beginning of a new period of growth for Mead, as the company diversified beyond its traditional paper products. A 1957 acquisition, the Atlanta Paper Company, led Mead into the packaging business and was the forerunner of Mead's packaging division, which invented the familiar paper six-pack carrier for bottled beverages and became the largest supplier of paperboard beverage packaging in the world. The specialty paper division, which produced papers for filters and insulation, was started with the purchase of Hurlburt Paper Company of South Lee, Massachusetts in 1957.
Mead entered the container business in 1955 and 1956 with the acquisition of Jackson Box Company of Cincinnati, Ohio. This firm became the nucleus of Mead's containerboard division. In 1960 Mead's rapid expansion in paperboard manufacture prompted the Federal Trade Commission (FTC) to file a complaint against Mead, alleging that Mead's growth since 1956 was anticompetitive. Mead and the FTC settled in 1965 when Mead signed a consent decree, agreeing to sell seven of its plants over five years and place a ten-year moratorium on paperboard acquisitions.
Mead began its wholesale distribution network with the acquisition of Cleveland Paper Company in 1957. Mead's aggressive expansion of its wholesale force provoked a 1968 suit by the Justice Department. The suit claimed that Mead's acquisition between 1957 and 1964 of six paper wholesalers with 38 outlets caused an unlawful concentration in the paper industry. Mead agreed in 1970 to sell within two years 22 of the outlets operated by Chatfield & Woods Company, acquired in 1961, and Cleveland Paper Company.
Acquiring Businesses Unrelated to Papermaking in the 1960s
With the retirement of Chairman Howard E. Whitaker and President George H. Pringle in 1968, the new president, James W. McSwiney, began to acquire businesses that were unrelated to papermaking. During the 1950s, and with the 1968 allocation of $50 million for the expansion of the Escanaba mill, Mead had spent in excess of $400 million on maintaining and improving its papermaking facilities. Then its business emphasis in paper products shifted from production to marketing. The paper markets, however, were fairly mature, and growth had to be sought else-where. Mead's management anticipated a boom in family spending and homebuilding and bought companies that would benefit from such a boom. Mead's acquisition of an educational products supplier in 1966 was followed in 1968 by the purchase of Woodward Corporation, a maker of pipe and pipe fittings, castings, and chemicals and of Data Corporation, which produced computer software. In 1969 Mead bought a furniture maker.
1970s Recession Leading to Divestments
These purchases did not shield Mead from an economic recession in the early 1970s. In 1971 the Escanaba mill was operating at a loss despite a $15 million investment in upgrading the plant. Another $45 million investment went into the plant the following year, but profitability continued to elude the operation. As a result of its flagging profits, Mead began to sell off some of the acquisitions it had made only a few years earlier.
Mead managers sold more than $80 million of interests in low-growth markets between 1973 and 1976. For example, lower-grade tablet paper and low-volume colored envelope interests were eliminated. Mead sold off facilities such as the corrugated-shipping-container plant it had built at a cost of $3.5 million in Edison, New Jersey, in 1967, but which had never made a profit. Mead's corrugated-paper business was concentrated in Stevenson, Alabama in 1975. Mead also directed its attention to potential growth in paper; for example, the company responded to an anticipated hike in mail rates by investing $60 million in a computer-controlled paper machine to make lightweight paper.
Mead retained substantially diverse operations, including furniture factories, foundries, and Alabama coal mines. Despite these far-flung interests, in 1974, about 24 percent of Mead's pretax earnings came from paper, 35 percent from paperboard, and 5 percent from wholesaling. Metal products contributed 11 percent and furniture 5 percent, while about 20 percent was derived from sundry jointly owned forest products operations. Mead lost an estimated $85 million in sales owing to strikes at several pulp and paper mills. By 1975, however, sales and profits were on the upturn.
- Colonel Mead establishes the Mead Paper Company.
- William Luke establishes the Piedmont Pulp and Paper Company.
- West Virginia Paper merges with West Virginia Pulp Company to become West Virginia Pulp and Paper Company (WVPP).
- The Mead Paperboard Corporation is founded as a holding company for the company's paperboard operations.
- The Mead Corporation incorporates.
- Mead enters the container business with the acquisition of Jackson Box Company of Cincinnati, Ohio.
- WVPP changes its name to Westvaco Corporation.
- Franklin Container Corporation of Philadelphia and Tim-Bar Corporation file a $1.2 billion antitrust suit against Mead and eight other box makers.
- Mead Data Central is sold.
- Westvaco sells its corrugated container operations.
- Mead and Westvaco merge to form MeadWestvaco.
- The company sells its writing and printing papers business and 900,000 acres of forestland.
In 1977 the consolidation of the box-making business became problematic as two small Pennsylvania paper-box makers, Franklin Container Corporation, of Philadelphia, and Tim-Bar Corporation, filed a $1.2 billion antitrust suit against Mead and eight other box makers. The suit charged the defendants with price fixing and with attempting to push smaller makers out of the market by buying independent box makers and opening operations where they would compete with smaller businesses. The suit was one of the largest price fixing lawsuits in U.S. legal history. Mead was found not guilty in a 1979 criminal trial, but a jury found the company guilty in a civil class-action suit of 1980. The other defendants had settled out of court prior to the civil suit, and Mead was left with a potential liability of $750 million. Finally, Mead also settled out of court in 1982 for $45 million, considerably less than it might have had to pay in court, but still five times more than any of the other defendants paid.
1980s Highlighted by the Increasing Success of Mead Data Central
In 1979 Mead ranked fourth among forest products companies and hit its all-time earnings peak of $5.19 a share while fending off an unwanted takeover by Occidental Petroleum Corporation. By the early 1980s, earnings began to fall from their 1979 peak of $141 million to a loss of $86 million in 1982—Mead's first loss since 1938. Among the factors responsible were a drastic decrease in demand for lumber products and the costly settlement of the box suit. In addition, Mead's $1.5 billion five-year expansion plan begun in 1978 may have equipped it to benefit from the next paper market boom, but it also left the company in 1983 with a debt amounting to more than half of its total capitalization. Mead whittled away at the sum by selling several noncore businesses. By 1984 debt was down to 42 percent of capital, still a dangerously high level but better than in the previous year.
Business improved in 1984, as Mead's electronic information-retrieval services became profitable. Mead Data Central Inc. (MDC), the subsidiary whose primary product was LEXIS, a service that made case law and statutes available through online computer searches, had been growing at a rate of 43 percent a year. Unveiled in 1973, LEXIS took in about 75 percent of the computerized legal research market by the late 1980s. The system's success was enough to spark its own court battle with West Publishing Company, which claimed that MDC intended to infringe on its copyrights by distributing its information with West's pagination. Mead in turn filed its own antitrust suit against West. The case was settled in 1988 with a licensing agreement permitting MDC to offer West-copyrighted material via the LEXIS service.
By 1988 MDC boasted 200,000 subscribers, who bought $300 million worth of information. In 1988 LEXIS was responsible for MDC's 33 percent growth. LEXIS accounted for an estimated $215 million of MDC's $307.6 million revenues. MDC's other products included NEXIS, which distributed newspaper and magazine reprints. MDC also carried other services, such as LEXPAT, which distributed patent information, and LEXIS Financial Information Service, which provided stock information. Micromedex, a subsidiary acquired in 1988, provided information about poison and emergency medicine on compact disc.
In 1988, to enhance the scope of its service to attorneys, paralegals, and the court, MDC purchased The Michie Company, a legal publisher based in Charlottesville, Virginia, publishing statutes from 24 states in printed form. MDC made these statutes searchable electronically through the LEXIS service and developed compact disc products combining case law and statutes.
In addition to the promising enterprises at MDC, in 1988 Mead unveiled Cycolor, a new paper for color photocopying. The specially coated paper contained a chemical that, like an instant film, performs the reproduction internally, eliminating the complex machinery formerly needed to create color photocopies. Mead contracted several Japanese companies to manufacture copiers compatible with the paper. By 1990, two Japanese companies were marketing copiers using Cycolor. Development of this product was costly, and it diminished Mead's earnings from 1986 to 1990. After losing almost $200 million developing the special paper, Mead closed its Cycolor division in December 1990.
While developing these nonpaper interests, Mead also undertook some rationalization of its traditional sectors. Most important was the restructuring of its paperboard operations to focus on the production of coated board. Mead dissolved its partnerships with Temple-Inland in the Georgia Kraft Company, sold six of its container plants, and doubled its coated board capacity. The Macon mill was sold in 1987 to Pratt Holding, Ltd., an Australian firm; Temple-Inland took control of the Rome, Georgia plant; and in 1988 Mead took full control of the Phenix City coated board mill. In 1991, Mead completed a $580 million expansion of this mill, which added 370,000 tons of coated board annually. Mead also sold its share of the Brunswick pulp and paper mill in August of 1988 and sold its recycled products business to Rock-Tenn Company in 1988.
Steven Mason Leading 1990s Turnaround
These rationalization moves were important, but Mead's revenues were flat from 1988 through 1992 and net earnings fell from a record $352.7 million in 1988 to $38.5 million in 1990, $6.9 million in 1991, and $71.6 million in 1992. After ten years as chairman and CEO, Burnell Roberts retired in 1992 and was replaced by Steven Mason, who had been president and vice-chairman. A third-generation Mead employee with 35 years at the company, Mason moved quickly and boldly to turn Mead around.
In mid-1992 Mason announced the start of a three-year performance-improvement plan that aimed to increase both productivity and customer satisfaction. As part of the plan, Mead laid off about 1,000 employees, setting up a $95 million special reserve for expenses such as severance pay, retraining, relocation, counseling, and outplacement. Another component of the plan called for overall productivity increases of 3 percent per year, which would lead to annual savings of about $60 million. By year-end 1996 Mead had successfully hit this target, as it had achieved an overall productivity gain of 12 percent since 1992. During this same period Mead's customer satisfaction rankings markedly improved; in 1992 less than half of the company's business units were ranked first in customer satisfaction compared with Mead competition, but by 1996 three-quarters were ranked first.
Equal in significance to the performance-improvement plan was Mason's decision to refocus Mead on core value-added forest products. In addition to selling its imaging and reinsurance businesses, Mead reduced its uncoated paper operations through the 1995 sale of the loss-making Kingsport, Tennessee uncoated paper mill. The largest divestment, however, came in December 1994 when the company sold Mead Data Central to Anglo-Dutch publishing giant Reed Elsevier for $1.5 billion, taking Mead out of the electronic publishing business. Following these moves, Mead had three core areas of operation: paper (primarily coated paper, a sector with more growth potential than uncoated paper), packaging and paperboard, and distribution and school/office supplies.
Much of the $1 billion after-tax proceeds from the MDC sale was used to pay down debt and make stock repurchases. Overall, from 1992 to 1996 Mead was able to reduce its debt-to-capital ratio from 47 percent to 36 percent. Meanwhile, company shareholders were kept happy through repurchases of 8.7 million shares valued at $459 million.
To shore up its core areas, Mead spent heavily to upgrade and add machinery to its mills and also made one strategic acquisition. The Escanaba and Chillicothe coated paper mills were the recipients of large capital investment programs, with $200 million spent in 1994 and 1995. In November 1996 Mead increased its coated paper capacity by 600,000 tons a year with the $640 million purchase of a coated paper mill located in Rumford, Maine from Boise Cascade. The mill also brought with it 667,000 acres of woodlands, which increased Mead's timber holdings to 2.1 million acres in eight states, a 65 percent increase over 1992 holdings.
Mead's paperboard capacity also was increased through the 1996 completion of a 225,000-ton-per-year, $176 million corrugating medium machine at the Stevenson mill. That same year the company announced a second phase to the capital upgrades at this mill, whereby the new machine's output would increase to 390,000 tons annually when virgin pulp-making capability, a wood fuel boiler, and additional dryers were added by 1999. The second phase was expected to cost an additional $224 million.
Following record-breaking revenues of $5.18 billion and robust net earnings of $350 million in 1995—a year with market conditions favorable to paper companies—Mead celebrated its 150th anniversary in 1996 with solid revenues ($4.71 billion) and earnings ($195.3 million). Mason's various initiatives as chairman and CEO clearly had borne fruit. The company's future also seemed bright, as the April 1996 appointment of Jerome F. Tatar, a 23-year Mead veteran and former president (over an eight-year period) of Mead's Fine Paper Division, as president and chief operating officer (and expected Mason successor) pointed to the likelihood that Mead would continue on a steady course into the early 21st century.
The History of Westvaco
Born into a Scottish papermaking family, Westvaco founder William Luke came to the United States in 1852. Ten years later he began running a plant for Jessup & Moore Paper Company in Harper's Ferry, West Virginia. Although employed by Jessup & Moore until 1898, he set up a small plant of his own with his two sons in 1889. Originally established in Piedmont, West Virginia, a shift in the Potomac River and a 1922 municipal name change eventually put the same facility in Luke, Maryland, where Westvaco still operated a mill in the late 1990s.
The mill was one of many mills that, during the late 1800s, imported and developed automated wood-pulping technologies. Called the Piedmont Pulp and Paper Company, it became the first commercially successful sulfite pulp mill in the United States. Eventually U.S. makers used the sulfite process to make 83 percent of their paper. The Piedmont plant employed 60, and by 1891 it began production of printing paper under the name West Virginia Paper.
U.S. timber supply and automated processes lowered the price of paper and accelerated its consumption. In 1897 West Virginia Paper merged with West Virginia Pulp Company of Davis, West Virginia and became West Virginia Pulp and Paper Company (WVPP). It expanded along with the United States' growing demand, and it established a business headquarters in New York City. In addition to its white printing paper, it marketed pulp and chemical byproducts. In 1904 William Luke relinquished the presidency of the company to his son John Luke, who held the position until 1921. William Luke died in 1912, at which time the company had four mills operating in West Virginia, Pennsylvania, Virginia, and New York.
Post-World War I Diversification
During the post-World War I recession, prices plummeted and strikes hit two-thirds of the industry, including WVPP. Sales and earnings reached a record level, however, in 1920, which would be unequaled for 20 years.
While white paper production volume remained relatively constant, diversification accounted for virtually all growth after World War I. The company produced its first kraft paper in 1921, the first year of David Luke's tenure as president. David Luke was another son of the founder. Used in U.S. packaging since 1907, kraft paper replaced many wood and textile shipping containers. As trees in the southern states were more suitable for kraft, between the world wars kraft production in the region skyrocketed. West Virginia's kraft output grew steadily for 15 years but then leveled off.
In 1929 WVPP introduced containerboard, a heavier, corrugated paper used for boxes. Federally approved for shipping in 1914, use of this material grew tremendously during the world wars.
During the 1920s WVPP began purchasing woodlands to supply its own wood pulp, but self-sufficiency in fiber supply remained a long-term prospect. By the 1930s very little virgin timber remained in the southern states. WVPP continued to buy land close to its mills and eventually owned extensive woodlands. The immaturity of the trees in its holdings, however, forced it to rely on outside suppliers for its pulp supply and prevented diversification into finished wood products.
Another son of William Luke, Thomas Luke, became president in 1934, inheriting a company with young diversification attempts and old mills. Three years later the company built a new mill to produce kraft and containerboard. By 1939 all five mills operated 24 hours per day.
The company's mills continued to operate at capacity throughout World War II. Wartime allocations made scarce the materials for expansion and repair, however. Although its facili-ties produced 20 percent more volume by war's end, WVPP's facilities emerged from the war badly in need of modernization.
David L. Luke Initiating a Series of Expansion Programs: 1945–63
Ascending to president in 1945, David L. Luke, a grandson of the founder, established the company's modern growth pattern. He immediately began the first of many expansion programs, spending the $17.5 million the company had accumulated during the war. The company also used some of its cash surplus to acquire more land, selling the trees too mature for papermaking to provide additional financing.
Wartime research greatly expanded paper's uses, particularly in containers. Postwar demand continued to grow so explosively that only production volume and market share concerned papermakers. The industry enjoyed favorable prices, consolidating competition, and growing demand in all areas of paper products.
The industry set high prices, required more prompt payment, and used the cash influx to build new mills during the late 1940s. Capacity caught up with demand by the late 1940s, and surpassed it by the mid-1950s, creating the need for more development leading to automation, product consistency, and new uses for paperboard. Although still reliant on white paper, WVPP put much of its postwar development efforts into these areas.
Profit margins in the commodity-based paper industry remained slim during the 1950s, and a company's technological efficiency determined its success. The cyclicality of the industry meant that for the next 30 years papermakers invested in capacity additions. When they did so, they lowered prices precipitously. David L. Luke's expansion programs, however, coincided with the industry downturns. While occasionally requiring more debt than that to which the company was accustomed, automation allowed it to cut its work force for each of the next ten years.
The first major work stoppage since World War I occurred in 1952, when 4,000 employees struck. Labor relations flared up more frequently in the postwar era, decreasing earnings on occasion, well into the 1970s.
The company got more short-term use of its land in 1952 when it discovered a use for its hardwoods. Traditionally, only younger and softwood trees had been used for paper. Hardwoods on WVPP's land holdings used for paper allowed the company to reduce production costs.
Encouraged by the premature utility of its land, over two years the company aggressively increased its holdings 75 percent to 749,000 acres. Most of the money spent on expansion in the 1950s, however, went to equipment modifications required by the technology.
WVPP sold its output mainly to companies that converted it to finished products. Priced as a commodity, paper prices often changed dramatically, making earnings erratic. Demand, however, constantly increased, providing a greater cash flow.
Use of paperboard, a noncorrugated material for consumer product containers, grew explosively during David L. Luke's presidency. Just as kraft paper and containerboard accounted for the company's prewar growth, paperboard made up most post-war growth.
The 1953 acquisition of Hinde & Dauch Paper Company, a box maker, allowed WVPP to bypass distributors and represented the first major move toward integration. Hinde & Dauch (H&D) used WVPP's paperboard to produce its parent company's first finished paper products. Bleached paperboard was found to take colors as well as printing papers, making it highly adaptable to packaging uses. In 1955 WVPP purchased color presses to produce paperboard finished to client specifications.
West Virginia Pulp & Paper Company slowed expansion and improvement during the mid-1950s in its traditional sectors of printing papers, kraft, and containerboard, in favor of its new division. The company closed H&D's paper mills but built more than 20 new assembly plants for it during the next ten years, to make the most of H&D's knowledge of package design and experience with marketing finished products. These new plants allowed for the first increase in WVPP's workforce since World War II. By constantly automating to reduce labor costs, its number of employees began to level off again by the early 1960s.
WVPP purchased a Brazilian paper box maker in 1953. By the end of the 1950s, the Brazilian subsidiary financed its own production expansion with fewer employees.
Demand for white printing papers began its first large increase in decades in 1954 as a population boom and renewed prosperity increased consumption of printed materials. Demand for all paper products grew so explosively in the 1950s that by 1956 the industry could not meet demand. WVPP's earnings increased out of proportion to sales, peaking at $16.3 million in 1956 after five successive years of gains.
The industry responded by rapidly expanding its capacity. WVPP typically upgraded one machine at a time, rather than building or buying new mills. This method slowly consolidated production into larger and fewer facilities. By 1959 WVPP completed its largest spending program, doubling capacity at the Luke mill; but when domestic growth slowed, prices collapsed. Despite annual sales records, for the next five years WVPP's earnings fluctuated wildly—at one point dropping to as low as $8 million. Other factors that depleted earnings included new technology that produced more pulp from harvested trees as well as price wars following the entry of forestry and container companies into paper. WVPP, which also sought to enter new markets, lowered prices as well.
Many companies waited for demand to catch up, but West Virginia Pulp & Paper continued its ten-year expansion plan. It focused on relatively inexpensive converting plants rather than mills, but its debt grew more sizable. The timing of the expansion speeded WVPP's recovery; by 1962 demand began to catch up to the capacity added in recent years. The spending program was completed and the company issued only $60 million in bonds.
The length of the industry's recession and the growth of H&D encouraged a renewed push toward finished products. In 1957 West Virginia purchased Virginia Folding Box Company, an assembler of cigarette packaging. It eagerly expanded the acquisition and reorganized itself into six divisions, four of which were in the business of converting: bleached boards, building boards, fine papers, H&D, kraft, and merchant paper. The company decentralized each division and provided each with its own sales force.
As new materials, particularly plastic, threatened to replace older forms of paper packaging, technical research intensified during the mid-1950s and the early 1960s. Higher than the industry average, WVPP's research expenditures enhanced its reputation for product development. Research and development spending quadrupled during the ten-year period, ending 1961 at $4 million annually.
WVPP pioneered several processes, including the use of electronic controls in production, the marketing of waste byproducts in the chemicals division, the use of hardwoods, and the development of Clupak, a more elastic kraft paper. The company typically licensed or sold new technologies to pay for additional research.
By 1959 packaging grades of paper made up two-thirds of West Virginia's production volume. By 1960 the demand for office and printing papers (at one time WVPP's primary product) provided growth to the long-stagnant industry. Then oriented toward finished products and marketing, WVPP set up a separate sales force to sell directly to printers and paper converters.
When paper prices improved in the early 1960s, WVPP made the most of its recently completed investment program. The renewed efficiency and a change in its accounting method finally pushed 1965 earnings past the 1956 level. The downturn, however, had raised the competitive level of the industry. Like its competitors, WVPP came out of the late 1950s and early 1960s more diversified, integrated, and less production oriented.
WVPP exported negligibly until 1960, when 3 percent of sales went overseas. Although it did not pursue international markets actively for another 20 years, in 1962 it set up an international division to explore manufacturing possibilities abroad and established foreign subsidiaries in Europe and Australia.
David L. Luke retired in 1963. During his tenure the company had changed dramatically. At the end of World War II, West Virginia Pulp & Paper Company had produced commodity grades of paper for a few hundred customers, but by 1959 it had its own sales force selling a variety of finished paper products to a customer base of 11,000. The company had developed the marketing techniques and made the necessary acquisitions to get it started in finished conversion while keeping debt to a minimum.
Diversification and International Expansion: 1963–88
Hesitant to join his family's company at first, David L. Luke's son David L. Luke III became CEO in 1963, after working 11 years for WVPP. He maintained the product development momentum initiated by his father and continued to upgrade efficiency with frequent spending programs. Like the rest of the industry, however, he reevaluated the use of debt in the coming decade. In 1962 the Luke family controlled 30 percent of the company's stock; by 1984 it controlled only 2 percent.
Still pursuing self-sufficiency in fiber supply, the company's land holdings were constantly becoming more productive. WVPP acquired its millionth acre in 1964. Research into forestry techniques produced hybrids that were not only more disease resistant but capable of growing three times the wood fiber per acre than the strains of 15 years earlier.
Shrinking timber reserves nationwide escalated land value further. Beginning in the late 1960s, WVPP developed land of commercial value and purchased additional timberland closer to its mills. Operating in 22 states, this latter strategy proved important when transportation costs inflated during the 1970s. Lower land values in the early 1970s allowed additional land purchases. Even though these lands provided only 10 percent of its raw material requirements, in the long term they stood to raise the degree of self-sufficiency.
During the mid-1960s, the growth rate in earnings once again outpaced sales. Operating near capacity once again, the company was able to reduce the debt it had assumed to complete its expansion program. Most of this investment went to make its three main mills more efficient. Nearly half of sales in 1967 came from products introduced in the previous ten years. This success and resulting heavier cash flow tempted the company to offer consumer products, a segment profiting several of its competitors. WVPP purchased C.A. Reed Company in 1968, maker of disposable paper products. Although the disposables market soared in the 1960s and 1970s, WVPP sold it after only seven years.
White printing papers used by business systems also boosted sales. Although the industry began to see overruns again, WVPP began another expansion program in 1967. It included the building of a new white paper mill in Kentucky. At $90 million, it was the largest project ever attempted by the company. In 1969 the company changed its name to Westvaco Corporation. Growing dependence worldwide on North American pulp and timber helped make Westvaco less dependent on the health of the domestic economy, exporting 10 percent of sales by the early 1970s.
Commodity-type production continued to plague the industry. In the early 1970s the industry suffered once again from too much capacity, higher production costs, and low prices. Tougher environmental standards and a weaker economy hastened closure of plants industrywide. Westvaco closed plants, but its frequent incremental upgrades kept shut-down costs low. Leaner by default, turnaround came quickly.
During the early 1970s the government kept paper prices and labor costs stable but put a freeze on earnings as well. U.S. paper production reached record levels. By 1972 the government loosened its restrictions on paper somewhat, but fierce price competition negated a 4 percent price increase approval in 1971.
Wage and price controls were lifted altogether in 1974, allowing the industry to pass on production costs. Like the industry's recession in the early 1960s, these price controls contributed to integration, as producers sought to increase earnings in areas outside federal control, particularly finished paper products.
The paper industry was now increasingly accountable to federal regulations. The Federal Energy Administration forced Westvaco and 12 other paper companies to convert certain plants to coal burning from oil. The Department of Justice blocked an attempt by Westvaco to acquire the remainder of U.S. Envelope, the largest domestic producer of envelopes, of which Westvaco owned 58 percent. The paper industry had been investigated repeatedly for antitrust compliance and been named in private suits. Although Westvaco settled suits out of court it had never been indicted.
In the ten years ending 1975, Westvaco almost doubled sales, while simultaneously reducing its workforce. During the mid-1970s demand in all sectors began to catch up with capacity, but growing production costs dampened earnings.
Energy shortages of the early 1970s prompted Westvaco to turn to its land holdings once again by mining coal for its own consumption. By 1974 it achieved 40 percent fuel self-sufficiency by burning its own waste from the production process. Such conservation efforts would help earnings substantially in the late 1970s.
The 1980s were turnaround years for papermakers. The industry started to spend on capacity once again. Although Westvaco now converted more than one-third of its paper production in its own plants, growth in the use of the personal computer and in the publishing industry gave way to rapid increases in demand for Westvaco's traditional printing papers.
By the mid-1980s, Westvaco emerged from one of the worst five-year periods for the industry with six straight earnings records. In addition, it had completed its spending program. These programs drained earnings, but at their conclusion the company earnings jumped dramatically, and the company produced more paper with larger, more efficient units and less labor. David Luke III began four such programs in his 24 years as CEO.
By employing its own sales force, Westvaco diversified not by acquisition, but by tailoring products for customers. Research and sales forces emphasized new uses for bleached board in microwave food packaging and liquids packaging.
During the mid-1980s, the company took a series of anti-takeover steps. Although at record levels, debt was lower than in most companies in the forest products and packaging industries. David Luke III's final spending program of $1.6 billion was financed 80 percent internally. Unlike those before it, the program intensified product development instead of production efficiency.
Westvaco set up trade offices in Tokyo and Hong Kong in the mid-1980s to tap the skyrocketing Asian and Pacific markets. Finished products paved the way for increased activity overseas, and by the late 1980s exports reached 15 percent of sales. The consistently profitable Brazil operations began to export, after holding 20 percent of Brazil's corrugated box market for decades.
Significant growth in the printing industry in the late 1980s led to capacity expansion. Westvaco emphasized heavier-weight printing papers, despite the industry's cyclicality, which forced buyers to cut costs occasionally.
Emphasis on "Differentiation" in the Late 1980s and Early 1990s
During David Luke III's 24 years as CEO, Westvaco did more than most papermakers to free itself from the cyclicality of commodity production. His program that accomplished this, "differentiation," continued under his successors—his brother John A. Luke, who became CEO in 1988, and John A. Luke, Jr., whose attainment of the CEO position in 1992 represented the fifth generation of Lukes at the company helm. For Westvaco, differentiation meant manufacturing specialized products that met specific market segment needs. By lessening its reliance on commodity grade products, Westvaco would thus protect itself from the inevitable downturns of the cyclical paper industry; and, in practice, differentiation had proved to be a successful strategy for Westvaco through the mid-1990s.
Westvaco's specialty chemicals were a prime example of differentiated products. This business segment was bolstered in 1992 with the acquisition of North American Carbon. By 1995 Westvaco held a virtual monopoly of the U.S. market in carbons for automotive emission control devices, a sector that generated $15 to $20 million each year. The company sought to strengthen its position further when it announced late in 1995 a plan to spend $80 million to build a new activated carbon plant near its Wickliffe, Kentucky, fine papers mill, with operations scheduled to begin in mid-1997.
In the early 1990s differentiated products accounted for two-thirds of company sales, compared with only one-third a decade earlier. John A. Luke, Jr., aimed to increase this further, to about three-quarters of overall sales. A major step toward this goal came in 1995 when Westvaco sold its corrugated container operations to Weyerhaeuser for an estimated $85 million, the rare occurrence in company history of an asset sale. Westvaco's exit from the corrugated container business promised to free up capacity at its Charleston, South Carolina, mill for production of additional differentiated products, such as decorative laminates for kitchen countertops, which were made from saturating kraft paper.
Westvaco also continued to expand overseas as another basis for future growth. Subsidiaries were established in South Korea and Singapore in 1992 and in China, the Czech Republic, and India in 1995. Brazil, however, continued to be Westvaco's largest foreign beachhead, and the company's operations there were increased in 1996 with the opening of a new container plant in Pacujus and the purchase of a consumer packaging plant in Valinhos. Almost one-quarter of Westvaco's 1996 revenues were generated outside the United States, and John A. Luke, Jr., set a goal to increase that figure to one-third within ten years.
Westvaco enjoyed an exceptionally strong year in 1995, fueled in part by a market upturn, with record revenue of $3.27 billion and record net income of $280.8 million. The company's stock split three for two that August. Meanwhile, environmental issues came to the fore when the Council on Economic Priorities placed Westvaco on its 1995 list of the country's eight worst corporate polluters, citing 1992 toxic emissions more than three times the industry average. For its part, Westvaco announced plans in early 1995 to spend $140 million to upgrade its bleached pulpmaking plants so as to eliminate the use of elemental chlorine. Environmental groups had been lobbying paper companies to eliminate this use of chlorine because of the creation of the highly toxic chemical dioxin as a byproduct.
In early 1996, David L. Luke III retired from the Westvaco chairmanship, and John A. Luke, Jr., added the post of chairman to his roles as president and CEO. In September of that same year Westvaco formed a joint venture with SCANA Corporation to build and operate a $160 million power cogeneration facility at Westvaco's North Charleston, South Carolina, kraft paper mill. The new facility would enable Westvaco to make future expansions in its manufacturing operations at North Charleston. The company also announced plans to build a $20 million technical center in North Charleston with laboratories and offices for its specialty chemicals division.
From the late 1980s through the mid-1990s, Westvaco had been one of the steadiest-performing companies in the paper industry. Westvaco's emphasis on differentiated products and its reinvestment programs may have cut earnings over short-term periods, but it provided a sounder basis for long-term growth. The company was also well positioned to take advantage of an increasingly open world market, all of which added up to a promising future.
A Merger in the New Millennium
By the start of the new millennium, the paper and forest products industry was undergoing significant change by way of consolidation. An influx of companies offering similar products forced prices to fall and left paper concerns scrambling to shore up profits and control costs. Large companies, including International Paper Company and Georgia-Pacific Corporation, were buying up smaller companies and Mead and Westvaco alone were considered to be takeover targets. The two companies, however, decided to join forces in a $3.1 billion deal that would position it as the second largest producer of coated papers.
Before its merger with Mead, Westvaco had bolstered its holdings with strategic acquisitions including a bleached paperboard mill in Evadale, Texas, and two packaging suppliers—Mebane Packaging Group and IMPAC Group Inc. By 2001, both Mead and Westvaco were pursuing options that would allow them to remain competitive in the ever-changing industry. Mead and Westvaco struck a deal in August 2001 and announced their intent to merge.
The union that created MeadWestvaco was viewed as a merger of equals and because the deal was structured as such, the new company would assume very little debt. Meanwhile, its competitors were straddled with significant debt due to recent acquisitions. As a stock-for-stock exchange, Mead shareholders received one share of the new company for each share of Mead stock held as well as a cash payment of $1.20 per share. Westvaco shareholders received 0.97 shares of MeadWestvaco for every share of Westvaco stock held. Westvaco's offices in Connecticut became MeadWestvaco's company headquarters.
The deal was completed in January 2002 and MeadWestvaco was born. In one fell swoop, the company had become a major player on par with the likes of International Paper and Georgia Pacific, with operations in coated and specialty paper, packaging, consumer and office products, and specialty chemicals. The company expected to save at least $325 million as a result of the merger, and as part of the integration process, it shuttered three paper machines and facilities in Chillicothe, Ohio, as well as a plant in Front Royal, Virginia.
With John Luke, Jr., at the helm of MeadWestvaco, the new company made several keys moves over the next few years. As part of its acquisition strategy, it purchased pharmaceutical packaging manufacturer Kartoncraft Ltd. of Ireland and stationery products concern AMCAL Inc. Tilibra S.A. Productos de Papelaria, an office products manufacturer based in Brazil, was acquired in 2004.
MeadWestvaco also began divesting certain assets, including parcels of forestland. In 2003, the company announced plans to cut 1,000 jobs and close several plants in order to increase earnings. As part of that plan, it consolidated its consumer and office products operations.
The company made its most significant move in January 2005 when it announced plans to sell its papers business to NewPage Corp., a private buyout company controlled by Cerberus Capital Management LP. The $2.3 billion deal included paper mills in Ohio, Michigan, Maryland, Maine, and Kentucky, and 900,000 acres of forestland in Illinois, Kentucky, Michigan, Missouri, Ohio, and Tennessee.
The sale of these assets was a major initiative in MeadWestvaco's strategy to focus on its packaging products business. The sale also would allow the company to pay down nearly $900 million in debt. NewPage completed its purchase in May 2005, leaving MeadWestvaco with three core segments: Packaging, Consumer and Office Products, and Specialty Chemicals. MeadWestvaco had indeed experienced significant change in the early years of the new millennium, but as 2005 came to a close, the company's management team was confident that its activities over the past several years left it well positioned for success in the future.
MeadWestvaco Coated Board, Inc.; MeadWestvaco Consumer Packaging Group, L.L.C.; MeadWestvaco Forestry, L.L.C.; MeadWestvaco Maryland, Inc.; MeadWestvaco Texas, L.P.; MeadWestvaco Virginia Corporation; Rigesa, Celulose, Papel E. Embalagens Ltda. (Brazil).
Packaging; Consumer and Office Products; Specialty Chemicals.
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—Elaine Belsito, Ray Walsh
—updates: David E. Salamie, Christina M. Stansell