The merger of Crown Cork & Seal Co. Inc. and CarnaudMetalbox will create a $2 billion-per-year global plastics packaging giant based in Philadelphia. The new company, which could be formed by September, will be a major force in PET bottles, container closures and health and beauty packaging. It also will be a player in high density polyethylene containers and flexible packaging markets.
Crown Cork of Philadelphia announced May 22 that it agreed to pay about $5.2 billion for Paris-based CMB. The deal will transform the merged companies into theworld's largest packaging business, with more than $10 billion in annual sales, 340 plants and 52,400 employees worldwide, dwarfing nearest competitors Toyo Seikan Kaisha of Japan and Pechiney International of France.
``It's a good deal for Crown Cork,'' said Pat Dunkerley, an analyst with Edward D. Jones & Co. of St. Louis. ``They shot an elephant and put plenty of meat on the table.''
The ``meat'' includes CMB's $1 billion-per-year plastics operations for health and beauty packaging, closures, containers and film, most of which areconcentrated in Europe.
Crown Cork brings to the table its large Constar International Inc. PET and HDPE container business and its plastic closure operations, which totaled $957.9 million in sales in 1994, mainly in North America.
Dunkerley said the new company will have greater purchasing power for raw materials, more bargaining power with customers and opportunities for cost cutting.
The businesses involved are so extensive that competitors were unable to predict strategic directions after the merger. The firms are plastics majors but they also have large core businesses for steel and aluminum cans, lids and closures, and aerosol containers. The firms are about equal in size -Crown Cork's sales last year were $4.45 billion vs. CMB's 24.9 billion French francs (US$4.9 billion) - and each aggressively tries to cut costs.
Crown Cork Chairman and President William Avery emphasized in a news release the global strength of the new company.
The merger will help ``Crown Cork beef up metal and plastic packaging in Europe,'' said Robert DeVeer Jr., a managing director with CS First Boston of New York, which is advising Crown Cork on the deal. CMB will help Crown Cork expand in health and beauty packaging, ``where they have a lead on us,'' DeVeer said.
Officials with Lazard Freres in New York, which is advising CMB, would not comment on the deal. CMB officials could not be reached for comment in Paris.
The new company will be a major packaging force, but its impact on competitors will depend on where it chooses tocompete, said Randall House, vice president of Poly-Seal Corp., a major closure manufacturer in Baltimore.
``Will they enter new markets or will they grow within existing markets?'' House asked in a telephone interview. The firms' current competitors are able to defend their markets but if the new company ``invests heavily in a certain market it could be difficult [for competitors] to defend.''
House said he believes the primary motive for the merger is to give the firms financial strength for capital expansion and bigger economies of scale for production.
A Wheaton Inc. official said the merger might not have much impact on health and beauty packaging markets in North America, where CMB's Risdon Corp. business already is a major supplier of injection molded colored cosmetics packaging.
``Being large doesn't necessarily help you be better'' in such markets, said Robert Veghte, chief executive officer of Wheaton, a Millville, N.J., plastic and glass packaging producer.
The customer base is consolidating, but there are reasons for health and beauty packaging suppliers to continue as a fragmented industry, he said.
``These are generally specialty businesses, especially on the beauty side where fashion is being sold,'' Veghte said. ``The challenge is how to preserve entrepreneurship while promoting a specialty approach.''
Veghte became familiar with CMB when the company agreed last year to merge with Wheaton to form the world's largest health and beauty packaging company with sales of $800 million. The two companies pulled the plug on the plan in September because the Wheaton family was not happy with their proposed role in the new business.
Veghte sees most gains in the Crown Cork and CMB mergerwhere their major markets overlap, especially in metal cans. Crown Cork's metal and other nonplastic operations accounted for about 78 percent of its 1994 sales, according to its 1994 annual report. Metal packaging amounted to about 73 percent of CMB's 1993 sales, CS First Boston estimated in a November 1994 report on CMB.
Crown Cork has grown in plastics in recent years. It dramatically boosted its stake in 1992 when it bought Constar, North America's largest bottle blow molder, for $515 million. A year earlier it acquired Tredegar Industries Inc.'s plastic beverage closure division, which fit with its Crown Obrist plastic closure business in Europe acquired in 1985.
Crown Cork's international sales are significant and include revenues from plastics in Europe, South America and Asia.
Constar Europe, the former Wellstar Holding BV, has PET blow molding operations in Europe. Constar became sole owner of Wellstar in 1993. Crown Cork also has injection molding joint ventures in South America and Asia and molds plastic closures at many of its global metal packaging plants.
CMB was formed in 1989 by the merger of Carnaud of France and Metal Box of the United Kingdom. Its largest plastics business is health and beauty packaging, which accounts for 16.5 percent of sales, according to a CS First Boston report. Metal and plastic food closures are about 7.9 percent of sales, while plastic household containers and closures, and flexible packaging, each represent about 3.2 percent of sales.
In 1993 CMB sold its Bioplast PET bottles and preforms subsidiary based in Spain and its High Performance Plastics division, a maker of rigid plastic packaging in Europe. CMB expanded its global plastic closure business in 1993 when it purchased Zeller Plastik Group GmbH of Zell, Germany. Zeller's North American operations complement CMB's Risdon's health and beauty packaging business based in Naugatuck, Conn.
CMB's largest shareholder, Compagnie Generale d'Industrie et de Participations, agreed to exchange its CMB shares for equity securities offered by Crown Cork. CGIP, which owns about 32 percent of CMB's shares and 46 percent of votes, will hold about 20 percent of shares in the new company. CGIP is a French holding company with interests in computer software, building materials, medical diagnostic equipment and other industries, a Crown Cork official said.
Crown Cork will offer CMB shareholders Ffr225 ($44.13) cash or a combination of Crown Cork common and convertible preferred stock for each share.