Clorox Co. is moving its Glad line to a new joint venture with consumer-products powerhouse Procter & Gamble Co., which recently developed but has not sold its own brand of competing food wrap.
The unnamed venture must gain regulatory approval, which officials at both firms expect this year. Oakland, Calif.-based Clorox will manage the venture.
P&G will take a 10 percent ownership stake with an option to purchase another 10 percent share. P&G will offer its technology, patents and trademarks useful to the Glad family of products. Those products include food and trash bags, plastic food containers and film wraps.
If what is now a nonbinding agreement in principle moves forward, it could reinvigorate the Glad brands, said Clorox President and Chief Operating Officer Gerald Johnson. Johnson stunned investors and analysts with the announcement during an analyst presentation Nov. 14 in Chicago.
Clorox's Glad bags and wraps have the largest shares in their respective categories, Johnson said. But both Johnson and Clorox Chief Executive Officer Craig Sullivan conceded that Clorox's $2 billion acquisition of Danbury, Conn.-based First Brands Corp. in early 1999 - a deal that included the Glad line - was difficult for Clorox. The deal almost doubled Clorox's size overnight and propelled the company into household products with lower profit margins, long lead times for innovations and heavy capital costs, Johnson said.
Sullivan said the company lost focus and took its eye off the ball for awhile before the Glad business improved.
``We've improved fundamentals, but we still have some major issues: ``How do you transform the Glad business to higher growth and higher margins driven by technology and innovation, and do it fast?'' Johnson said.
Clorox and P&G have signed an agreement in principle to form a joint venture for the Glad business worldwide.
``Over time, this truly has the potential to transform Glad.''
Clorox posted $4.06 billion in fiscal 2002 sales, while P&G is a $40 billion maker of household products. The companies compete head-on in certain categories, including household cleaners.
Although P&G sells no products that compete directly against the Glad line, the venture would bring more to the table than might be apparent. P&G has developed and test-marketed a line of polyethylene food wrap called Impress Sealing Wrap that P&G said does not stick and forms a better airtight seal than existing wraps.
However, since testing the product in 2000, the Cincinnati company decided not to sell the Impress line, said P&G spokeswoman Martha Depenbrock.
Johnson said Clorox will use the Impress technology and capital equipment, but he did not say whether Clorox will come out with a line of PE food wrap.
The venture also could use P&G's research expertise in specialty resins and its high-speed equipment, said Bob McDonald, president of P&G's global fabrics and home-care business. The home-products leader also can offer crossover technology for its diaper, feminine-care and tissue towel businesses, McDonald said.
``This is an efficient way to bring technology to other consumer categories rather than license the technology one at a time to various companies,'' McDonald said.
That efficiency will be needed to separate Glad from competitors, said Huston Keith, president of film consulting firm Keymark Associates of Marietta, Ga. Other firms have tried to break through with new bag products, such as zipper-bag closures, he said.
``It's a very competitive business,'' Keith said. ``It has fairly low profit margins and there are starting to be offshore producers and others putting a lot of private labels into the business.''
Clorox's film products compete with Pactiv Corp.'s Hefty bags, Alcoa Inc. and its Reynolds line, S.C. Johnson & Son Inc. and its DowBrands division and many private-label zipper and trash bags, said analyst Tim Burns of Cranial Capital LLC in Solon, Ohio.
But Burns said the venture with P&G signifies Clorox has given up on its in-house research efforts.
``My guess is that Clorox is resigned to outsourcing technology to inspire new product lines,'' Burns said. ``Pactiv and some of the others have got to pay attention.''
P&G plans to contribute 20 fulltime employees in the research area, Depenbrock said.