After a year and $1.7 billion spent boosting its stake in plastics, Tenneco Inc. is set to break from its beginnings as a supplier of natural gas, spin off 30-year-old shipbuilding interests and take its beefed-up packaging and auto parts businesses solo. If Tenneco shareholders approve the tax-free deal Dec. 10, it will turn the conglomerate into a more-focused, less-cyclical manufacturing concern with sales of about $7 billion in plastic, paper and aluminum foil packaging; plastic consumer products; and automotive shock absorbers and exhaust systems, said Paul Stecko, president of Tenneco Packaging.
The transaction also will give Tenneco shareholders stock in three separate, publicly traded companies: Tenneco Inc., Newport News Shipbuilding Inc. and El Paso Natural Gas Co.
``Obviously we think this is a very good deal for the shareholders or we would not recommend it,'' Stecko said recently by telephone from Tenneco Packaging headquarters in Evanston, Ill.
Specialty packaging, the $2.1 billion core of Tenneco's $4 billion packaging
business, is 80 percent plastics - nearly $1 billion in thermoformed containers, much of it for the food-service market, which is growing faster than the U.S. gross domestic product, Stecko said.
Though thermoforming sales quadrupled after it bought Amoco Foam Products Co. in August and Mobil's Plastics Division last year, both companies also brought some consumer products to the mix, with the Hefty share - in trash bags and polystyrene foam tableware - coming from Mobil. Also with Mobil came polyethylene stretch film and institutional trash bags, PS foam meat trays and carry-out containers, and-in its only overlap with Tenneco goods-clear oriented polystyrene containers, consolidating Tenneco's top spot in that market.
That gargantuan $1.4 billion buy alone went a long way toward helping Tenneco Packaging double its $2 billion in sales and triple earnings from 1994-96.
During the next four years, Tenneco Packaging plans to do it again, boosting its $4 billion business to $8 billion, by acquisition and organic growth, underscoring specialty products, said Saralee Norton, vice president of quality management and strategy. It expects to have about $3 billion available to that end.
``We've got to look at other products, other geographies, other market segments. You're never going to get that kind of growth strictly by growing the businesses you're in,'' Norton said.
Even so, Stecko said Tenneco plans capacity expansions in both clear OPS and PS foam. As for new specialty products, that could mean value-added applications such as laminated rollstock or printed polypropylene, according to Norton. With its recent acquisitions, the company inherited plastics research and development expertise and gained such innovations as the OneZip PE food-storage bag, a technology that could have wider applications, she said.
``I think we'll look for some international opportunities to take some of our more innovative products to a broader market,'' she added.
As the firm buys bigger, faster thermoforming machines to support new-product development domestically, it will ship older equipment into smaller, developing markets overseas. In the United Kingdom, Tenneco's thermoformed packaging sales approach $90 million, but the company is looking at growing its overseas presence in Europe, Asia and elsewhere. This year it opened a folding carton plant in China, near Hong Kong, and an office in Singapore.
Domestically, Mobil Plastics has expanded Tenneco's regional distribution network, basically negating the need for new plants, making it an efficient capital expansion, Stecko said.
Both Stecko and Dana Mead, Tenneco's chairman and chief executive officer, are key strategists to a management style characterized as aggressive by Wall Street analysts such as Charles Harris of Oppenheimer & Co. of New York.
In its specialty packaging business, management sees ``a very stable end market,'' Harris said recently by telephone. ``They have a certain ability to potentially accelerate the top lines through new product introductions, which is strictly a management function.''
Harris said Tenneco's management style is better-suited to its new portfolio. But he recently gave its stock a valuation of Market Perform, a neutral rating.
Formerly the Tennessee Gas Pipeline Co., Tenneco's biggest business five years ago was Case Corp., a highly cyclical farm and construction equipment maker that was losing $1 billion a year and bleeding the parent's cash.
In the 1980s Tenneco first entered plastics packaging with a series of acquisitions that included Ekco Products of Wheeling, Ill., and A&E Plastics, an OPS container maker in City of Industry, Calif. Today, the Greenwich, Conn.-based Tenneco processes more than a billion pounds of plastic resins a year.