Europe's largest PET bottle/preform maker has signed a definitive agreement to purchase North America's second-largest PET blow molder for an estimated $650 million. Ratingen, Germany-based Schmalbach-Lubeca AG/Continental Can Europe, a unit of Viag AG, will buy Johnson Controls Inc.'s Plastic Container Division in Manchester, Mich. The sale does not include JCI's Plastics Machinery Division, which makes blow molding and structural foam molding machinery and tools, or its substantial plastic automotive components business. However, JCI's recycling facility in Novi, Mich., is included in the deal.
Terms will be disclosed when the sale is complete. The deal should close next month, pending approval by U.S. and European regulatory authorities.
``By purchasing JCI's Plastic Container Division, we are realizing our globalization strategy,'' Hanno C. Fiedler, Schmalbach-Lubeca chairman and chief executive officer, said in a news release. ``We will secure a major worldwide position in the fast-growing PET container segment. ... The Plastic Container Division enables us to participate in the important North American market and strengthens our established position in Europe.''
With the purchase, Schmalbach-Lubeca's PET packaging sales will more than double to about $1.3 billion and the firm will be the world leader in PET blow molding sales, surpassing Crown Cork & Seal Co. Inc. of Philadelphia.
``Our PET packaging division will thus become the most important contributor to sales,'' Fiedler added.
News of the deal did not surprise packaging analyst Tim Burns of Cranial Capital Inc. in Cleveland.
``JCI has been on the market to sell [the division] on and off for four or five years,'' Burns said. ``And they've probably been talking with Schmalbach for the last year.''
JCI makes beverage and food bottles in 27 locations in North America, South America and Europe, with global sales of about $800 million. The company ranked second in Plastics News' 1996 survey of
North American blow molders with estimated related sales of $662 million.
Milwaukee-based JCI is concentrating on its already-strong and expanding automotive business. The company makes automotive batteries, automotive seat systems, heating and other controls for buildings. JCI said it decided to sell the Plastic Container Division to pay for part of its debt from its purchase of Prince Automotive.
The $1.35 billion acquisition of the Prince's automotive interior operations, headquartered in Holland, Mich., closed Oct. 1. JCI had been considering a secondary stock offering to finance part of that deal.
``The Container Division has been good business,'' said JCI spokesman Glen Ponczak. ``1996 was not as good a year, but it will be good long term.''
JCI lost PET soft drink container volume last year as Atlanta-based Coca-Cola Co. and its bottling cooperatives increased in-house capacity beyond 80 percent. Profit for JCI's Plastics Division, which includes the machinery operations, fell 62 percent for the fiscal year ended Sept. 30, and sales for the division dropped 10.5 percent. The division profit is reported before interest and taxes.
However, JCI's Automotive Division's sales rose 35 percent to $5.3 billion in 1996 and will comprise 65 percent of JCI business with the loss of the Plastic Container Division.
Wall Street apparently approved of the sale, recording an eight-year high for the company stock at $83.375 on Dec. 11. Burns also thinks this was a smart move for JCI.
``The North American market has a glut in PET resin. There is high-cost, if not excess, capacity and older firms like JCI are running full out,'' he said. ``This is a great move for JCI. It can cash out without taking on difficult costs and write off the assets.''
Burns thinks there will be more consolidation in the rigid container industry. However, he warns that consolidation may not address the excess, high-cost capacity before pricing and profitability improve.
``There is excess injection and blow molding capacity, although it is better in Europe,'' according to Burns.
The PET division of Schmalbach-Lubeca employs 780 at its 12 plants in Europe and Asia and had sales of about $600 million in 1996. The firm makes refillable PET and one-way PET bottles for the beverage industry. The Schmalbach-Lubeca/Continental Can Europe Group employs 12,600 at 69 plants in 18 countries. It manufactures packaging and closures from PET, tinplate and aluminum.
The group's total sales are about $2.7 billion.
To pay for part of the acquisition, Schmalbach has formed a joint venture with its metal packaging division, along with Paris-based Pechiney SA and London-based Doughty Hanson & Co. The rest of the JCI purchase will be financed from bank loans.
``Schmalbach has significantly refined its portfolio. It's geared around the beverage packaging industry,'' Burns said. ``They're the market leader in Europe.''
He also offered some advice to the North American newcomer.
``The thing to happen is for Schmalbach to be aggressive in the U.S. market — to rationalize its capacity and make the operation more efficient.''