Russell-Stanley Corp.'s $70 million acquisition of Smurfit Packaging Corp. not only boosts its annual sales to $300 million, it elevates the Red Bank, N.J., firm to the position of U.S. leader in blow molded plastic drum manufacturing.
The merger gives Russell-Stanley a majority share of the plastic drum business, leaving others to wonder where this consolidation will lead.
``We are two times larger than we were a year ago,'' Russell-Stanley President and Chief Executive Officer Robert Singleton said in a telephone interview Nov. 11.
``We want to be the Fed-Ex of drums, serving customers quickly,'' Singleton said. ``We are responding to what we think the major trends are.''
With the acquisition, Russell-Stanley operates 12 plastic drum manufacturing plants, three steel drum making plants and an operation that cleans, inspects and ships plastic drums. It reported blow molding sales for last year of $70.5 million placing the company No. 25 in Plastics News' survey of North American blow molders.
Smurfit ranked No. 28 with sales of $65 million for the year ended Dec. 31.
``This is one piece of the total picture,'' Singleton said. ``We aspire to be a global leader in industrial container supply chain management.
With three acquisitions under its belt in only two months, the company has been moving rapidly. Singleton explained that Russell-Stanley's goals were to expand its service, geographic reach and product line. Each purchase was designed to meet one of these objectives.
When Russell-Stanley bought Container Management Services Inc. in September, its strategy was to enhance the service aspect of its container supply-chain management business. CMS leases drums and industrial bulk containers and provides on-demand delivery. Customers fill the containers and ship them to clients. When the containers are empty, CMS picks them up, cleans, inspects and tests them.
Earlier this month Russell-Stanley expanded its geographic reach with the acquisition of Hunter Drums Ltd. of Burlington, Ontario. Hunter blow molds plastic drums in Bramalea, Ontario and makes steel drums at the Burlington plant.
Both companies blow mold high-molecular-weight high density polyethylene for the specialty chemical, lubricants and other processing industries.
With the Smurfit deal, Russell-Stanley is buying its biggest competitor and enhancing its product range. Smurfit has a strong position in the smaller-drum segment, those 30 gallons and smaller. It also specializes in open-top containers, the type CMS uses to transport nonhazardous materials. Russell-Stanley's primary plastic drum is a 55-gallon, tight-head one-piece blow molded drum.
``Smurfit had product lines which allowed them to participate in market segments where we did not have a position,'' Singleton said. ``Our combined capabilities gives the company the resources needed to support our customers doing business on a national and global basis.''
According to the Freedonia Group, Russell-Stanley and Smurfit are the leading plastic drum manufacturers in the United States, controlling fairly equal amounts of the industry.
The Nov. 10 acquisition adds 400 employees at the five Smurfit plants — New Brunswick, N.J.; Wilmington, Del.; Conroe, Texas; Lithonia, Ga.; and Addison, Ill. The company offers 200 different sizes of industrial containers, up to 55 gallons, according to Freedonia, which recently published a report on rigid industrial bulk packaging.
Parent company Jefferson Smurfit Group plc in Dublin, Ireland, plans to concentrate on its core paper and packaging businesses. The sale is the first step in the restructuring process, according to Smurfit officials. The company reported a profit of $40 million on the deal.
Two-thirds of Russell-Stanley's business consists of plastic drums. The other third includes steel drums and other nonplastic containers, such as intermediate bulk containers.
Consolidation in the plastic drum industry started a couple of years ago and has escalated, said an official at another plastic drum manufacturer. In fact, he was surprised that it had taken this long, because the metal drum market underwent consolidation several years ago and the reconditioning market has recently seen major consolidation.
``It gives Russell-Stanley a stronger position and a much larger manufacturing base,'' he said. ``There are those companies that see a big guy taking over meaning they'll have to pay more.''
``There has been major consolidation in the market,'' agreed Tim Hargreaves, market specialist for rigid products at Nova Chemicals Inc. in Calgary, Alberta, a resin supplier to the plastic drum industry.
He estimated that Russell-Stanley has a buying capacity of about 170 million pounds per year for HMW HDPE. The industry bought a total of about 270 million pounds this year.
``There is still capacity in the marketplace; there are still a number of good producers providing good competition,'' Hargreaves added.
He pointed out that Russell-Stanley's growth prospects depend on whether it still plans to grow now that it acquired a customer base with the Smurfit deal. Russell-Stanley's size also gives the firm buying power and clout among suppliers.
Plastic drum sales are expected to grow 5.2 percent per year through 2001, to $340 million, as drums capture market share from their steel and fiber counterparts, according to Freedonia. Almost 85 percent of demand is generated by chemical and related packaging applications, particularly hazardous industrial chemicals. Nonchemical markets for plastic drums include petroleum and lubricant products and hazardous wastes. But, oil producers will continue to favor steel over plastic drums into the next century.
Plastic drums account for 21 percent of the total plastic consumption in rigid bulk packaging, according to the report.
In addition to blow molding, plastic drums can be rotationally molded from cross-linked HDPE.
Russell-Stanley Corp. and Smurfit will be one subsidiary of Russell-Stanley Holdings Inc., located in Red Bank, with the other two subsidiaries being Hunter and CMS.