Purchases Continental Can Canada Purchases Continental RoW #2 supplier of metal containers

1. Crown Cork & Seal in 1989
Submitted by
Ajal.A.J

2. 2
1891 1950’s
History & background:
• Established in 1891
• Growth until the 1950’s
• Financial problems in 1956 leading to virtual bankruptcy in 1957
• John Conolly arrived in 1957 and turned the company around through modernisation; asset disposal
• Started overseas investment
• Restructuring
• Increased firformance
Timeline – Crown Cork
1956 1957 ……..

3. 3
Threat of substitution
•Suppliers
•Can producing companies were fourth largest steel consumers
•During 60-70s traditional tin plated can industry was invaded by aluminium cans and also
fiber-foils and plastic suppliers
•Customers
•80% of metal cans were purchased by major food and beverage companies
•Can constituted 45% of the cost of the final product
•Hence most had at least two suppliers
•Poor services and uncompetitive prices could be punished – Therefore high propensity to
substitute
•Can plants set up to certain customer format, therefore high bargaining power of
customers

4. Crown Cork & Seal - Acquisitions:
1989 — Purchases Continental Can Canada ($330M),
Continental Can US ($336M)
1990 — Purchases Continental RoW ($125M)
1992 — Expansion into plastics: Constar purchased
($515 M) and Van Dorn ($175M)
1993 — #2 supplier of metal containers (Pechiney #1)
1996 — Acquired CarnaudMetalBox (France) for $5.2B
in stock and cash (largest acquisition of a European
firm by an American one at the time) becomes #1
supplier of metal containers

5. Crown Cork & Seal -International Expansion:
1993 — Builds beverage can and plastic cap
production lines in UAE, Jordan, Argentina,
and Shanghai
1994 — Expansion into Vietnam via JV with
two local companies, plans to produce 400M
cans per year
1994 — Announces Beijing JV, its 3rd
in China

6. Crown Cork & Seal-Management:
1989 — William Avery compensation exceeds $2M,
putting him in the top quintile of Fortune 500 CEOs
 Continuing restructuring: more than two dozen
plants closed between 1991 and 1995
1992 — Firm re-organized around 4 divisions: North
America, International, Machinery, and Plastics
2000 — William Avery steps down

7. Key issues
•No research and development. Very small
innovation
1. No scope for development
2. Decision to stay away from basic research
3. Only innovated as per customer needs( 2 piece can)
•Slow growth in metal can segment
1. Represents 61% market share.
•Decide whether to diversify
1. Can diversify to plastic and glass
2. Diversify to totally different fields as some other
companies have done
•Decide whether to acquire Continental Can
1. It has revenue $3.36 billion
2. Major player in Canada

8. Key issues contd..
• Connelly himself managed customers.
1. He was considered to be an adept salesman
2. He towered over his employees.
• Overcapacity of the plant
• Penetration by plastic and glass
• Avery , though President of the company since
1981, spent the duration of his career in
Connelly’s shadow

9. @ 1989
• Plastic bottle sales in the United States were
estimated to reach $3.5 billion in 1989
But ,
• The plastic bottle often allowed carbonation
to escape in less than 4 months,while
aluminum cans held carbonation for more
than 16 months.

10. SWOT analysis
• Strengths
1. Financially sound (debt to equity ratio less than 2%)
2. Good customer support
3. Cost efficient
• Weaknesses
1. No diversity of product
2. Limits of cost reduction
3. No R & D
• Opportunities
1. Globalization
2. Chance to consolidate
• Threats
1. Slow growth
2. Emerging plastic market

11. MARKET ANALYSIS
ENTRY THREAT (LOW)
•Easy entry
•2 piece line available for $12 M
•Low profit margins
RIVALRY (HIGH)
•Commodity product
•Excess capacity
•Low market concentration
SUBSTITUTES THREAT (MODERATE)
•Low switching cost
•Plastic / Glass
SUPPLIER (HIGH)
•Few big suppliers
•71% of market s aluminium
BUYER POWER (HIGH)
•Backward integration
•Purchase large volumes
•Buyers know cost

12. PROS AND CONS for Diversifying into
Plastic Industry
S.No Pros Cons
1 Increasing market share Material requires for
retaining carbonation
2 Light weight & Convenient Handling Preference for flat base
containers by soft drink
industry
3 Declining Resin prices
4 Easy substitute for glass based containing
solution :food ,beverages ,beauty,
pharmaceutical

13. More on Company Position
• Company position is intimately linked with a
company’s strategy
• While CC&S’s rivals largely adopted
diversification strategies…
• CC&S chose a focused strategy based on
appealing to profitable segments of the
market

14. 17
Porter’s Five Forces
Competitive R.
CustomersSuppliers
Substitutes
New Entrants
StrongModerateWeak
Five Forces Analysis
Substitutes
•Aluminium cans, plastic, paper, glass containers
•Aluminium/Steel Price/Preformance glass
•Marketing potential of aluminium/glass
(lithography)
•"a bottle which a person could
recognize even if they felt it in the
dark, and so shaped that, even if
broken, a person could tell at a glance
what it was" – Coca-cola
•Steel alters taste vs aluminium and glass do
not
•Steel $17.13 vs $20.81 – Steel vs Aluminium
•Substitutes pushed by legislation – recycling & CFC –
aerosols
New Entrants
•Barriers to entry are quite high
•benefits from supply-side and demand-side economies
of scale
•high capital requirements to compete
•incumbency advantages
Customers
•High investment levels leads to wanting to protect
investment
•Under threat from backwards integration
•Needed to ensure that they kept their costs low &
made it appealing for their customers to outsource
rather than move into their territory
•They managed this by focusing on their core
competencies and reducing costs for their buyers
•Ensuring that they could provide the cans JIT
therefore, no capital tied up in can stock.
•Located themselves near several customers for
clustering benefits
Suppliers
•Under threat of forward
integration from the R&D
departments of the
materials manufacturers
•Managed this by
building their own R&D
departments
Competitive Rivalry
•Capital investments are quite high so first movers may
falter, Crown followed second mover strategy
•Differentiated through innovative technology
•No unwise diversification moves
•Better sales/income than their competitors
•Less overseas competition – market development
strategy

15. 5 Forces analysis
• Entry threat- LOW
1. High initial investment
2. Low profit
• Buyer power – HIGH
1. Few big buyers
2. Huge costs
• Supplier power – HIGH
1. Few big suppliers
2. No proper substitute to aluminium
• Rivalry – HIGH
1. Low market concentration
2. Excess capacity
3. Commodity product
• Substitutes – MEDIUM
1. Low switching cost
2. Plastic and glass

16. Five Forces Analysis
• Capital investments are quite high so first movers may falter,
Crown followed second mover strategy
• Differentiated through innovative technology
• No unwise diversification moves
• Better sales/income than their competitors
• Less overseas competition – market development strategy
• Capital investments are quite high so first movers may falter,
Crown followed second mover strategy
• Differentiated through innovative technology
• No unwise diversification moves
• Better sales/income than their competitors
• Less overseas competition – market development strategy

17. 1. What are the key strategic issues that
Avery needs to consider? What strategic
options are open to him?
 After a long run in the metal/aluminium container industry Avery
now, needs to consider if it’s the right time to break into the
market of the plastic closures and glass containers in order to be
able to be competitive in this industry.
 Some of the strategic options open to him are whether or not get
involved in the bidding for Continental Can.
 The acquisition of this company would make Canada Crown the
largest presence outside the United States and would double the
size of Crown’s domestic operations.

18. 2. If we are going to analyze the industry that Crown
competes in, what is the appropriate industry to
analyze?
• In order to analyze the industry that Crown
competes in, we have to focus our attention
to the metal, plastic and glass container
industry.
• The metal container industry should be
analyzed because this is how Crown
established itself in the container market.
• The plastic and glass industry should also be
analyzed because this is the future for Crown.

19. 3. How attractive has the metal container
industry been over the years?
• The metal container industry represented 61% of all
packaged products in the U.S. and had been very
lucrative for the five firms that dominated the $12.2
billion industry during 1989 with Crown Cork and
Seal making up 7% of the market.

20. 4. How well did Crown Cork do under John
Connelly? What were the keys to their success?
• Crown Cork was revived under John Connelly. At the
time that he stepped up as president of Crown Cork
the company was at the verge of bankruptcy.
• Once Connelly took the reins of the company the
vision changed, to emphasize cost efficiency, quality
and customer service.
• This was done by recognizing Crown’s position as a
small producer and developed a product line built
around the company’s traditional strengths in metal
forming and fabrication. Also, Connelly closed
inefficient fabrication plants

21. Options before Avery
 After a long run in the metal/aluminium container industry Avery
now, needs to consider if it’s the right time to break into the
market of the plastic closures and glass containers in order to be
able to be competitive in this industry.
 Some of the strategic options open to him are whether or not get
involved in the bidding for Continental Can.
 The acquisition of this company would make Canada Crown the
largest presence outside the United States and would double the
size of Crown’s domestic operations.

22. 25
Environmental Stability vs. Industry Attractiveness
Environmental Stability Industry Attractiveness
• Declining profit margins
• Standardised items
• High requirement of capital
to enter the market
• Highly competitive with a
small number of large
competitors (Oligopoly)
• Unfavourable Legislative
Developments
• Environmental Pressure
• Social trend towards
aluminium
• Small number of market
participants

23. xxxxx 26
Financial Strength vs. Competitive Advantage
Financial Strength Competitive Advantage
• Low levels of financial leverage
compared to competitors
(reduced from 42% to 18%)
• Good liquidity due to
divestment; used to repay short-
term bank debt
• ROE highest one in the
industry at 15.80%
• 65% of revenues were driven
from can sales which could be
potential weakness
• Second mover strategy
• Manufacturing of tin-plated tins
and crowns
• 4th
largest company in the
market with a market share of
8.3%
• Innovation and exploitation of
technology
• Research & Development
investment

24. 27
Strategies for Crown Cork
•Transitional Aggressive-Competitive
•Build business
•Seeking and protecting position
•Innovative Strategy
•Capitalise on external opportunities
•Reduce exposure to environmental threats
•Aerosols and recycling

25. Strategy Adopted :Recombining
• 1990 Consolidation Begins
Crown acquires major portions of former industry
leader Continental Can Company and becomes
the North American packaging leader.
• 1992-Getting into Plastics
Crown Cork & Seal acquires CONSTAR
International, a world leader in PET plastic
containers for the beverage, food and household
markets.

26. 29
Questions?

27. Back up slides

28. METAL CONTAINER INDUSTRY
61% OF PACKAGED PRODUCTS
3 PIECE CAN TO 2 PIECE CAN
STEEL BODY TO ALUMINIUM

29. INDUSTRY STRUCTURE
PRICING
CUSTOMERS
DISTRIBUTION
MANUFACTURING
SUPPLIERS

30. INDUSTRY TRENDS
IN HOUSE MANUFACTURING
PLASTICS
GLASS
SOFT AND ALUMINIUM CANS
DIVERSIFICATION AND CONSOLIDATION

31. CONNELLY’S STARTEGY
PRODUCTS AND MARKETS
MANUFACTURING
RECYCLING
R&D
MARKETING AND CUSTOMER SERVICE
FINANCING
INTERNATIONAL
PERFORMANCE