Viag AG and Alusuisse Lonza Group Ltd. confirmed Nov. 27 their plan to merge operations, creating a powerhouse in global packaging and other markets.
The new firm will combine Viag's stake in PET containers, closures, beverage cans, flexible packaging and specialty glass with Alusuisse's position in food and tobacco flexibles, and pharmaceutical and cosmetics packaging. The two firms' sales in those markets last year were about 11 billion deutsche marks ($6.34 billion).
``Companies are finding it very hard to be profitable from price alone,'' said Doug Groh, vice president of Lazard Freres & Co. LLC of New York. ``They're looking to cut costs through mergers.''
Especially significant in North America are the firms' blow molding operations. Viag's Schmalbach-Lubeca Plastic Containers U.S.A. Inc. business had estimated blow molding sales of $629 million last year, ranking it third in Plastics News' recent survey of such firms. Alusuisse's Lawson Mardon Wheaton Inc. subsidiary ranked 12th with sales of $210 million.
Combining their blow molding-related sales would vault the merged firm into second place in North America, ahead of Philadelphia-based Crown Cork & Seal Co. Inc. and behind only Owens-Brockway Plastic Products of Toledo, Ohio. Officials at those two firms declined to comment on the merger's likely impact.
Schmalbach-Lubeca's U.S. director of marketing, Shelley Steele, said the two firms have little overlap in blow molding and it is too early to tell if there could be any plant consolidation in North America.
Lazard's Groh thinks the merger will be able to cut administrative costs in North America, but he expects operations otherwise will continue to run as they do now.
Schmalbach-Lubeca Plastic Containers U.S.A., based in Manchester, Mich., runs 16 PET container blow molding plants across the United States. Lawson Mardon Wheaton of Millville, N.J., blow molds high and low density polyethylene, polypropylene and PET at facilities in Illinois, New Jersey, North Carolina and Puerto Rico. In addition to plastic containers, it sells nearly $300 million worth of glass and other packaging in North America annually.
Viag and Alusuisse's flexible packaging operations mainly convert paper, foil and purchased plastic film, according to Alusuisse spokeswoman Christine Menz. In those multimaterial constructions, the companies' union would make them the largest manufacturer in those markets in North America and Europe.
Together, the companies run 12 flexibles operations in the United States and Canada, including Lawson Mardon's two U.S. dual-ovenable tray plants for frozen foods. Lawson Mardon Flexibles extrudes film at Salterbeck, England, for cereal box liners and similar uses.
A European analyst said the firms' blow molding operations are complementary. Each has specialized operations that provide a range of technologies in the new company, according to Nicholas Spoliar, packaging analyst at brokerage house West L.B. Panmure of London.
The new firm will have more than 20 percent of European flexibles market share, Spoliar estimated. Duplication, however, is likely to force rationalization of flexible operations.
``They do overlap significantly in some countries, particularly in Germany, but also in France and Italy,'' Spoliar noted.
Schmalbach-Lubeca became a major PET player in 1996 when it acquired Johnson Control Inc.'s Plastic Container Division. Alusuisse raised its profile in cosmetics and pharmaceutical packaging that year when it bought Wheaton Industries Inc., of Millville, with operations in the United States, Brazil, France and China. Alusuisse has been a major in flexible packaging since 1994 when it acquired Lawson Mardon Group, then based in Toronto.
Viag and Alusuisse plan to consummate the deal next August after rounds of legal and shareholder meetings and securities exchange and antitrust approvals. The new firm, to be based in Munich, Germany, will trade on German and Swiss stock exchanges and be quoted on London's SEAQ International.
The new company, with pro forma 1997 sales of about DM53 billion (US$30.5 billion), will be the sixth-largest corporation in Germany and the largest in Switzerland. Viag will contribute more than three-quarters of those sales.
The companies' other key markets are energy, telecommunications, aluminum and specialty chemicals.
The new company's diversity could be a drawback when others are shedding noncore businesses, Spoliar said. It could be unwieldy, and management may want to improve its focus.
Groh said it could take time for cost benefits to occur from the merger. ``That's tough in a market looking for immediate gratification,'' he said.
Current Viag shareholders will receive 10 shares in the new company for each Viag share. Alusuisse shareholders will get 21.7 new shares for each of theirs. Officials estimated combined market capitalization at DM40 billion (US$23.5 billion). They expect total employment, now at 127,000, to shrink about 2 percent. They also predict pretax savings of DM570 million (US$335 million) annually within three years.
Alusuisse Chief Executive Officer Sergio Marchionne predicted the merger will boost the firms' current packaging operating margins of 6 percent.
Beverage cans, PET and closures now represent 40 percent of combined packaging sales, followed by food flexibles and tobacco, specialty glass, pharmaceutical and cosmetic, and miscellaneous flexibles. Packaging makes up 17 percent of Viag's sales and 36 percent of Alusuisse's.
Plastics News' Europe correspondent Richard Higgs and reporter Sarah Smith contributed to this story.