Rexam plc's focus is changing dramatically. The former triple-material firm - aluminum, plastics and glass - is transforming itself into a dual-material firm, signing a deal March 12 to divest its glass business.
At the head of Rexam's global plastic packaging business is Graham Chipchase, 44, who was named group director of plastic packaging in 2005. His goal is to expand the plastics operations, and - armed with 660 million euros ($866 million) from the glass deal - Rexam could be getting ready to buy Owens-Illinois Inc.'s plastics operations.
``Our intention is to grow both organically and via acquisition,'' Chipchase said in a March 27 telephone interview. He had no comment on O-I's operations, which have been for sale since January.
``[Our] acquisition targets have to meet very specific financial criteria,'' he said. ``Everything we would like to do, we don't do. We have to have that financial discipline.''
Rexam's goal is to earn back its cost of capital within the first two years. The investment has to earn roughly an 11 percent return within that time, Chipchase said.
That means Rexam passes on some deals. For instance, Rexam last year was interested in Cie. de Saint-Gobain's Calmar business. But the asking price was too high, Chipchase said, and ultimately MeadWestvaco Corp. of Stamford, Conn., paid $710 million in cash for Calmar.
Not that Rexam has been afraid to spend money on acquisitions. Since 2005, London-based Rexam has spent $585 million to acquire Airspray NV of Alkmaar, Netherlands; Precise Technology Inc. of North Versailles, Pa.; and Delta Plastics Inc. in Hot Springs, Ark.
Rexam also in 2006 acquired the Chinese cosmetics packaging business of FangXin Ltd., and to get a start in India, it acquired TruePack in Bangalore, through which it gained manufacturing capacity in pharmaceutical packaging.
Some analysts speculate that a deal with Perrysburg, Ohio-based O-I could be next. O-I Plastics makes packaging and specialty closures for pharmaceutical, health-care, food and beverage, household, chemical and personal-care customers.
Rexam's glass divestiture gives it the cash necessary to buy those plastics assets, analyst Ghansham Panjabi of Wachovia Capital Markets LLC in New York wrote in a recent research report. O-I recently said a deal will come within six weeks, and it expects proceeds of $1.5 billion, which it will use to pay down debt.
Financial sources said they expect stiff competition for the O-I plastics assets, with private equity firms also showing interest.
Regardless of how the O-I chase turns out, analysts said Rexam has transformed itself into a focused consumer packaging company after a meaningful portfolio overhaul in the years since 1997.
``Management continues to impress with its ability to consolidate far-flung assets, including the acquisition of Brazilian can maker Latasa in 2003,'' Panjabi said in a February research report.
Now, under new Chief Executive Officer Leslie Van de Walle, Rexam is focusing on high-growth areas and emerging markets, Van de Walle said.
Rexam's history in cans has taught the company much, Chipchase said, including the lean manufacturing methods it has adopted in its plastics operations.
``We're lucky,'' Chipchase said. ``Our can business has been doing it for the last 15 years. We can learn from our cousins in the can business. We measure it, and we make sure it does happen.''
The can operations also give Rexam a leg up in pursuing growth for plastics in some international markets, he said. For example, Rexam already has a strong presence in the Russian can market.
``If we wanted to become bigger in Russia, it wouldn't take much,'' Chipchase said.
On the financial side, Panjabi expects Rexam to underperform in 2007, on the heels of an uninspiring 2006. Although sales were up 17 percent last year, pre-tax profit was down 1 percent.
The company is making improvements in its makeup division. That division has performed worse than expected, a result of canceled product launches and overcapacity in the market, according to Rexam's 2006 annual report. Rexam is cutting overhead costs and rationalizing capacity.
``We are trying to turn that business around in the next 12-18 months,'' Chipchase said. ``It's not a quick fix. We are well on our way to fixing it.''
In early March, the company opened its first-ever innovation center for the makeup division, in Sussex, Wis. Asked what he hoped to accomplish with the 8,500-square-foot center next to Rexam's plant, Chipchase said: ``The simple answer is that we want to maintain our leading global position in lipsticks, in terms of design, compacts and other types of makeup products, innovating with our customers.''
The company is making technology investments as well and will do a lot more in-mold labeling and molding of more than one material, he said.
``There's a lot of opportunity to improve functionality and appearance of products,'' he said.
In the past few months, Rexam has added 16 Ferromatik Milacron machines at its pharmaceutical packaging plant in Neuenburg, Germany. The equipment included seven Elektra Evolution all-electric presses. Rexam also invested in nine hydraulic K-Tec presses. The machines have clamping forces of 85-200 metric tons.
Ferromatik Milacron will send Rexam three more presses in the first half of this year. According to Ferromatik Milacron, the machines will make pharmaceutical products such as syringes and asthma inhalers.
Rexam invested in its first all-electric press for the Neuenburg facility in late 2005, but Chipchase said he is pushing for more technology upgrades across Rexam's plastic packaging operations.