When Union Camp Corp. was sold in 1999 to manufacturing giant International Paper Co., its new owner said it would hike sales dramatically for its flexible packaging business by the end of the year.
There was only one small hitch in those plans.
``We forgot to ask what year,'' said Patrick Woods, chief executive officer of Exopack LLC, a new plastics and paper multiwall-bag converter founded in August 2001.
Instead of growing the business, International Paper decided to divest it. The packaging division went back on the block, throwing the division's leaders and employees into unrest.
That business had a soft landing. An outside investment group, Sterling Group LP, and company executives spun off the division into Spartanburg, S.C.-based Exopack. It is a new company with old roots, said Woods, speaking March 26 at Packaging Strategies 2002 in Orlando.
Yet, Exopack's formation belies some of the changes uprooting the tradition-laden packaging industry. In recent times, the industry has grown accustomed to ownership shifts at virtually a moment's notice.
Several leading companies in both rigid and flexible packaging are on the market or have been sold recently. Others, such as New York-based MeadWestvaco Corp., have pieced together a larger company by buying other manufacturers.
MeadWestvaco now includes custom injection molding for medical and pharmaceutical applications and the molding of digital versatile discs in addition to its many paper packaging holdings. It even has a large investment in a collaborative-design dot-com business for packaging, Paxonix.
The firm still tries to foster a downstream management approach to compete in a challenging economy, said Rita Foley, senior vice president of the consumer packaging group of MeadWestvaco of Stamford, Conn.
``Each business unit stands on its own,'' said Foley, speaking at the same conference. ``We value the entrepreneurial spirit. The CEO of each business is running that business.''
Running to stay ahead is what many packaging companies are doing, said Tim Rothwell, director of consulting firm Ernst & Young. The stock prices of many companies are further underwater than the Titanic, Rothwell said. Both overcapacity and profitability woes plague some major packaging players, he said.
Making deals - in a market where buyers currently are paying a premium - is a natural response, said Rothwell, who is based in London. The industry is starting to respond like a Las Vegas card shark who has stayed away from the gambling table too long.
Consider: In 2000, about 435 packaging deals were made, totaling about $55.5 billion, according to Ernst & Young. With the economy sinking last year, though, mergers and acquisitions fell off the map. For the first nine months of 2001, the number dropped to 292 deals totaling about $9.2 billion.
But since then, a spark of activity has many investment houses mulling packaging balance sheets. The need for further consolidation, especially in the plastics business, has put companies on the sales block, added Ken Brooks, vice president with Ernst & Young.
``For some of them, noncore businesses are no longer seen as part of a portfolio strategy,'' said Brooks, who is based in Montreal. ``While they divest and shed operations, others are in a build-and-buy strategy.''
Investment analyst Timothy Burns, president of Williamsville, N.Y.-based Cranial Capital Inc., put it more bluntly: ``We did face a slight decline in [mergers and acquisitions] in 2001,'' Burns said. ``But in 2002, the floodgates basically have opened.''
But that consolidation frenzy is troubling to some, even those end customers that must work in a state of flux. In the food and beverage arena, Coca-Cola Co. worked with about 353 bottlers in 1980; today that figure is in the low 80s, said Jay Gouliard, vice president for packaging development and technologies with General Mills Inc.
Gouliard's company now owns Pillsbury Co., while Pepsi owns Quaker Oats Co.
But change is not necessarily a prescription for good health, Gouliard said. When companies grow too large, speed to market suffers, he said.
``The tendency is for critical decisions to take very, very long,'' Gouliard said. ``Disruptions and discontinuity tend to prevail. Not all suppliers survive during the consolidation process.''
Others are surviving by getting smaller. After splitting with International Paper, Exopack has gone from an organization of more than 200,000 people to one with 2,300 employees at nine U.S. converting plants.
Exopack CEO Woods said his biggest challenge was retaining those employees after International Paper said it would sell off that business, only a year after its acquisition of Union Camp
>From June 2000, when International Paper said it would sell the division, until the middle of last year, some longtime employees questioned their future and the company's loyalty to them, Woods said.
``If running the business wasn't enough, we had to maintain our focus,'' Woods said. ``It took a huge chunk of management time. Many of our employees thought they were all going to lose their jobs and the entire organization would go away.''
Woods, a 22-year Union Camp employee, helped put together a plan to keep those workers by offering constant communication and a biweekly newsletter, he said.
Now, former division management is attempting to transform the operation into a new company. The nine plants together record about $400 million in annual sales, giving Woods a good head start.
The company had to form a new culture and re-energize the work force, he said. Workers were given shares in Exopack's employee stock ownership plan and given the same level of pay and benefits they had received at International Paper.
Now, the company aggressively is looking to the future. During the next five years, Exopack would like to grow to at least $1 billion in annual sales, Woods said.
Woods would like to add more plastics facilities to balance the sales between plastics and paper, he said. Only two of its nine sites now convert plastic film, while the rest focus on paper.
At Montreal-based Alcan Inc., growth has meant connecting several diverse businesses, including a plastics container sector, during the past two years, said Armin Weinhold, president of Alcan Packaging in Zurich, Switzerland.
Alcan has faced many of the challenges of the ever-changing packaging sector, Weinhold said. It is balancing the need to align all its businesses - at 45 global facilities - and both innovate and cut costs, he said.
Doing that has meant a recent decision by Alcan to close or consolidate eight plants and eliminate 1,000 jobs, Weinhold said. At the same time, it has opened a new research center in Pennsylvania.
Managing a company with a diverse culture is a tricky task, Weinhold said.
``We depend on leadership to advance our core business principles,'' he said. ``We must continue our cost drive, but we also need to gear up for growth in the future, too.''